Redistribution Effects of Energy and Climate Policy: The Electricity Market

  • Energy and climate policies are usually seen as measures to internalize externalities. However, as a side effect, the introduction of these policies redistributes wealth between consumers and producers, and within these groups. While redistribution is seldom the focus of the academic literature in energy economics, it plays a central role in public debates and policy decisions. This paper compares the distributional effects of two major electricity policies: support schemes for renewable energy sources, and CO2 pricing. We find that the redistribution effects of both policies are large, and they work in opposed directions. While renewables support transfers wealth from producers to consumers, carbon pricing does the opposite. More specifically, we show that moderate amounts of wind subsidies can increase consumer surplus, even if consumers bear the subsidy costs. CO2 pricing, in contrast, increases aggregated producer surplus, even without free allocation of emission allowances; however, not all types of producers benefit. These findings are derived from an analytical model of electricity markets, and a calibrated numerical model of Northwestern Europe. Our findings imply that if policy makers want to avoid large redistribution they might prefer a mix of policies, even if CO2 pricing alone is the first-best climate policy in terms of allocative efficiency.

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Metadaten
Document Type:Article
Language:English
Author(s):Lion HirthORCiD, Falko Ueckerdt
Parent Title (English):Energy Policy
ISSN:0301-4215
Publisher:Elsevier Ltd
Publication year:2013
Publishing Institution:Hertie School
First Page:934
Last Page:947
DOI:https://doi.org/10.1016/j.enpol.2013.07.055
Release Date:2017/07/24
Tag:Carbon tax; Consumer surplus; Electricity market modeling; Emission trading; Producer surplus; Redistribution; Wind power generation
Volume:62
Notes:
This is a post-peer-review, pre-copyedit version of an article published in Energy Policy. The final authenticated version is available online at: DOI 10.1016/j.enpol.2013.07.055
Licence of document (German):Metadaten (öffentlich), post-print
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