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Climate policy and power producers: the distribution of pain and gain

Doda, Baran and Fankhauser, Samuel (2020) Climate policy and power producers: the distribution of pain and gain. Energy Policy, 138. ISSN 0301-4215

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Identification Number: 10.1016/j.enpol.2019.111205

Abstract

Climate policies do not affect all power producers equally. In this paper, we evaluate the supply-side distributional consequences of emissions reduction policies using a simple and novel partial equilibrium model where production takes place in technology-specific sites. In a quantitative application hydro, wind and solar firms generate power combining capital and sites which differ in productivity. In contrast, the productivity levels of coal, gas and nuclear technologies are constant across sites. We parameterise the model to analyse the effects of stylised tax and subsidy schemes. Carbon pricing outperforms all other instruments and, crucially, leads to more equitable outcomes on the supply side. Technology-specific and uniform subsidies to carbon-free producers result in a greater welfare cost and their supply- side distributional impacts depend on how they are financed. Power consumption taxes have exceptionally high welfare costs and should not be the instrument of choice to reduce emissions or to finance subsidies aiming to reduce emissions.

Item Type: Article
Official URL: https://www.journals.elsevier.com/energy-policy
Additional Information: © 2020 The Authors
Divisions: Grantham Research Institute
Geography & Environment
Subjects: G Geography. Anthropology. Recreation > GE Environmental Sciences
JEL classification: Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q4 - Energy > Q41 - Demand and Supply
Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q4 - Energy > Q48 - Government Policy
H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H23 - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
Date Deposited: 20 Dec 2019 08:27
Last Modified: 28 Jun 2020 23:28
URI: http://eprints.lse.ac.uk/id/eprint/102960

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