| This paper evaluates the consequences of renewable energy policies on welfare, resource rents and energy costs in a world where carbon pricing is imperfect and the regulator seeks to limit emissions to a (cumulative) target. We use a global general equilibrium model with an intertemporal fossil resource sector. We calculate the optimal second-best renewable energy subsidy and compare the resulting welfare level with an efficient first-best carbon pricing policy. If carbon pricing is permanently missing, mitigation costs increase by a multiple (compared to the optimal carbon pricing policy) for a wide range of parameters describing extraction costs, renewable energy costs, substitution possibilities and normative attitudes. Furthermore, we show that small... |
