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Learning-by-Doing and the Optimal Solar Policy in California

Arthur van Benthem, Kenneth Gillingham and James Sweeney

Year: 2008
Volume: Volume 29
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol29-No3-7
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Abstract:
Much policy attention has been given to promote fledgling energy technologies that promise to reduce our reliance on fossil fuels. These policies often aim to correct market failures, such as environmental externalities and learning�by-doing (LBD). We examine the implications of the assumption that LBD exists, quantifying the market failure due to LBD. We develop a model of technological advancement based on LBD and environmental market failures to examine the economically efficient level of subsidies in California�s solar photovoltaic market. Under central-case parameter estimates, including nonappropriable LBD, we find that maximizing net social benefits implies a solar subsidy schedule similar in magnitude to the recently implemented California Solar Initiative. This result holds for a wide range of LBD parameters. However, with no LBD, the subsidies cannot be justified by the environmental externality alone.



The Political Economy of a Carbon Price Floor for Power Generation

David M. Newbery, David M. Reiner, and Robert A. Ritz

Year: 2019
Volume: Volume 40
Number: Number 1
DOI: 10.5547/01956574.40.1.dnew
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Abstract:
The EU carbon price lies well below estimates of the social cost of carbon and "target-consistent" carbon prices needed to deliver ambitious targets such as the 40% reduction target for 2030. In light of this, the UK introduced a carbon price floor (CPF) for its electricity sector in 2013 and the new Dutch Government has recently made a similar commitment, while successive French Governments have called for an EU-wide CPF. This paper analyzes the impacts and design of a power-sector CPF, both at the EU and national level, using a political-economy approach. We find a good case for introducing such a price-based instrument into the EU ETS. We suggest that a CPF should be designed to "top up" the EUA price to �25-30/tCO2, rising annually at 3-5% above inflation, at least until 2030. We argue that the new EU Market Stability Reserve enhances the value of a CPF in terms of delivering climate benefits, and discuss the potential for a regional CPF in North-West Europe. We also review international policy experience with price floors (and ceilings).





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