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Christian-Albrechts-Universität zu Kiel

Institut für Volkswirtschaftslehre - Department of Economics
Economics Working Papers

Economics Working Papers: Abstract 2007-28




Albrecht Bläsi, Till Requate




Subsidies for Wind Power: Surfing down the Learning Curve?
Abstract We develop a model with two types of electricity producers, fossil fuel utilities generating emissions, and suppliers of electricity from renewable resources such as wind energy. We account for the vertical structure of the wind-energy sector by considering wind-turbine producers engaged in learning by doing and selling their turbines to turbine operators. We show that in the absence of learning spillovers a first-best policy requires Pigouvian taxes only. We also study second-best optimal subsidies on electricity generated by wind power when (optimal) emission taxes are ruled out. We further investigate the impact of subsidies on prices, output, the number of firms, and environmental damage. It turns out that, in the case of purely private learning, second-best optimal subsidies should only account for the environmental damage but are not necessary to spur learning.

Keywords: learning by doing, renewable energies, environmental policy, Pigouvian taxes, subsidies, feed-in tariffs

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