Supplementing an emissions tax by a feed-in tariff for renewable electricity to address learning spillovers

In the presence of learning spillovers related to renewable energy technologies, an optimal strategy to mitigate climate change should complement an emissions tax by a subsidy for renewables. This article addresses the question how such subsidy should be designed. It is shown that the widely-used approach of a revenue-neutral fixed feed-in tariff can yield an optimal outcome under restrictive conditions only. It has to be adapted continuously as the electricity price changes. Moreover, funding the tariff by a surcharge on the electricity price has important implications for the design of the emission tax. The optimal tax rate has to be below the Pigovian level, differentiated across fossil fuels and adapted over time as the patterns of technological development change. These requirements may pose a formidable challenge for practical decision-making. However, it is important to point out that the eventual choices made with respect to the design and funding of a feed-in tariff have to be based on a careful and more comprehensive policy assessment, including, inter alia, economic effects beyond the electricity sector and existing institutional constraints.     

Competition and environmental policies in an electricity sector

We study the impact of competition and environmental policy (feed-in tariff vs. the EU ETS) on investment, CO₂ emissions and welfare in an electricity sector. We consider different market structures (a planner who maximises social welfare vs. duopoly) and two types of consumers (those whose behaviour depends on the weather vs. those whose behaviour does not). The demand specification is innovative and takes incompressible consumption into account.Given the costs and demand functions, we find that competition can increase CO₂ emissions, as is highlighted by Mansur (2007). In duopoly, the EU ETS seems to be the only efficient policy for reducing CO₂ emissions but also to increase the share of production based on renewable energy sources. The retained feed-in tariff policy seems to be the most expensive policy in terms of “social welfare”. Even if this policy seems to increase “social welfare”, feed-in tariffs increase the CSPE, which is paid for by consumers in the form of higher electricity prices and only benefits new entrants. It is also less effective in terms of emission reduction.     

A comparative analysis of energy and CO2 taxes on the primary energy mix for electricity generation

In many countries, economies are moving towards internalization of external costs of greenhouse‐gas (GHG) emissions. This can best be achieved by either imposing additional taxes or by using an emission‐permit‐trading scheme. The electricity sector is under scrutiny in the allocation of emission‐reduction objectives, not only because it is a large homogeneous target, but also because of the obvious emission‐reduction potential by decreasing power generation based on carbon‐intensive fuels. In this paper, we discuss the impact of a primary‐energy tax and a CO₂ tax on the dispatching strategy in power generation. In a case study for the Belgian power‐generating context, several tax levels are investigated and the impact on the optimal dispatch is simulated. The impact of the taxes on the power demand or on the investment strategies is not considered. As a conclusion, we find that a CO₂ tax is more effective than a primary‐energy tax. Both taxes accomplish an increased generation efficiency in the form of a promotion of combined‐cycle gas‐fired units over coal‐fired units. The CO₂ tax adds an incentive for fuel switching which can be achieved by altering the merit order of power plants or by switching to a fuel with a lower carbon content within a plant. For the CO₂ tax, 13 €/tonCO₂ is withheld as the optimal value which results in an emission reduction of 13% of the electricity‐related GHG emissions in the Belgian power context of 2000. A tax higher than 13 €/tonCO₂ does not contribute to the further reduction of GHGs. Copyright © 2005 John Wiley & Sons, Ltd.     

Rewarding energy savings rather than energy efficiency: Exploring the concept of a feed-in tariff for energy savings

Financial incentives are important for overcoming certain market barriers to improved energy efficiency and for the adoption of energy efficient technologies. Financial incentives are mainly focused on the introduction of specific technologies, rather than behavioural change. While the declared goal of financial support schemes very often is to save energy or reduce harmful emissions rather than to foster new technologies per se, it is often encountered that such financial support for energy efficient technologies may not ensure real energy savings due to the rebound effect and various market barriers.In the area of renewable energies it is common for financial support to be given to power producers for the verified production of renewable electricity, in the form of a guaranteed financial incentive (feed-in tariff). In the energy efficiency policy research little attention has been paid to the possible use of a “feed-in tariff” in the form of a financial incentive based on the kWh saved by the end-user. This paper discusses the possible setup of a feed-in tariff designed to reward energy savings.     

A market for renewable energy credits in the Indian power sector

Electricity generation from renewable energy sources in India has been promoted through a host of fiscal policies and preferential tariff for electricity produced from the same. The fiscal policies include tax incentives and purchase of electricity generated through renewable energy sources. The enactment of the Electricity Act 2003 (the Act) has lent further support to renewable energy by stipulating purchase of a certain percentage of the power procurement by distribution utilities from renewable energy sources. The renewable portfolio obligation as well as the feed-in tariff for power procurement has been specified by a number of State Electricity Regulatory Commissions (SERCs) for the respective state under their jurisdiction. A feed-in tariff determined through a cost-plus approach under a rate of return framework lacks incentive for cost minimisation and does not encourage optimal utilisation of renewable energy resources in the country. Such regulatory provisions differ across states.The prevalent practice of fixing a renewable portfolio obligation along with cost-based feed-in tariffs disregards economic efficiency. The paper proposes nationally tradable renewable energy credits scheme for achieving the targets set by the respective SERCs as renewable portfolio obligation. This would reduce the cost of compliance to a renewable portfolio obligation, and would encourage efficient resource utilisation and investment in appropriate technologies. The paper highlights its advantages and implementation issues. This paper discusses regulatory developments for promotion of renewable energy in various Indian states. The paper also identifies a number of issues related to regulations concerning renewable portfolio obligation.     

Status of thermal power generation in India—Perspectives on capacity,generation and carbon dioxide emissions

India’s reliance on fossil-fuel based electricity generation has aggravated the problem of high carbon dioxide (CO₂) emissions from combustion of fossil fuels, primarily coal, in the country’s energy sector. The objective of this paper is to analyze thermal power generation in India for a four-year period and determine the net generation from thermal power stations and the total and specific CO₂ emissions. The installed generating capacity, net generation and CO₂ emissions figures for the plants have been compared and large generators, large emitters, fuel types and also plant vintage have been identified. Specific emissions and dates of commissioning of plants have been taken into account for assessing whether specific plants need to be modernized. The focus is to find out areas and stations which are contributing more to the total emissions from all thermal power generating stations in the country and identify the overall trends that are emerging.     

The role of public policy in optimizing renewable energy development in the greater southern Appalachian mountains

This research presents a third component of a comprehensive decision support system for energy planning that allows for combining existing electricity generating capabilities with increased use of renewable energy sources. It focuses on energy planning at the regional level, and concentrates specifically on the greater southern Appalachian mountains of the eastern United States: a region that was chosen for analysis not only due to its heavy dependence on coal for electricity, but also because of its potential for increased use of wind and solar power. Previous research used a geographic information system (GIS) model for identifying renewable energy potential to provide input data for a multi-objective linear programming (MOLP) model to determine the optimal constrained mix of renewable energy sources and existing fossil fuel facilities by balancing annual generation costs against the corresponding greenhouse gas emissions. This new component of the system analyzes three potential public policies—renewable portfolio standard, carbon tax, and renewable energy production tax credit—that have been used to foster increased renewable energy usage. These policies require minor modifications to the MOLP model for implementation. The results of these policy cases were then analyzed to determine the impact that these policies have on generation cost and pollution emissions within the region.     

Lifecycle economic analysis of biofuels: Accounting for economic substitution in policy assessment

This paper develops a lifecycle economic analysis (LCEA) model that integrates endogenous input substitution into the standard lifecycle analysis (LCA) of biofuel that typically assumes fixed-proportions production. We use the LCEA model to examine impacts of a pure carbon tax and a revenue-neutral tax-subsidy policy on lifecycle greenhouse gas emissions from cellulosic ethanol using forest residues as feedstock in Washington State. In a model allowing for input substitution in the cellulosic ethanol feedstock, conversion, and transportation process, we consider energy source substitution (woody biomass for coal in the cellulosic ethanol conversion plant and biodiesel for diesel in feedstock production and feedstock and ethanol transportation) as well as substitution of capital and labor for energy in all stages of the lifecycle. We find that ignoring endogenous input substitution by using standard LCA leads to substantial underestimation of the impact of carbon tax policies on carbon emissions. Both tax policies can substantially reduce carbon emissions by inducing substitution among inputs. The revenue-neutral tax-subsidy policy reduces emissions more effectively than the carbon tax policy for carbon tax rates currently in place throughout most of the world. It stimulates substitution of woody biomass for coal and biodiesel for diesel at much lower tax rates when accompanied by corresponding subsidies for reduced emissions from renewable sources.     

实施风力发电、生物质直燃发电、光伏发电溢出成本全网分摊的可行性分析

可再生能源发电溢出成本分摊的可行与否从根本上讲,是取决于总分摊额度对总体电价水平的影响程度。总分摊额度不仅仅取决于分摊的电价,同时也取决于可再生能源上网的电量以及在全社会总耗电量中的比例。通过测算和分析,按照本建议提出的合理电价水平和开发规模,风力发电、生物质直燃发电、光伏发电对于全网电价上涨的影响是十分微小的。“十一五”期间每年全网每度电只需增加0.1152～0.3423人民币分,仅占电价的0.36%～0.96%,就可以实现:并网风力发电400万kW,离网风力发电8.8万kW,生物质直燃并网发电437.5万kW,并网光伏发电10万kW,离网光伏发电30万kW;三大类“绿色”电力年发电量达到306.73亿kWh,占全国总发电量的0.91%。实施这样的电价政策,对于我国风力发电、生物质直燃发电、光伏发电产业将产生巨大的推动作用,会出现跳跃式发展的局面。政府可以进一步采取阶梯电价的政策保护弱势群体,遏制高耗能、高污染的不良消费群体,从而减小提高电价所可能产生的阻力。采取这样的政策可以为增加一次能源供给、减轻环境压力做出贡献,为我国能源的可持续发展奠定基础;与此同时新兴产业会产生可观的产值和利税,利税总和大于全网补贴的总额;新兴产业将为社会提供几十万个直接就业岗位,并为2015年全部解决我国边远地区无电人口的用电问题做出决定性的贡献;显著地增加农民收入的支农效益。     

Optimal feed-in tariff for solar photovoltaic power generation in China: A real options analysis

The feed-in tariff policy is widely used to promote the development of renewable energy. China also adopts feed-in tariff policy to attract greater investment in solar photovoltaic power generation. This study employs real options method to assess the optimal levels of feed-in tariffs in 30 provinces of China. The uncertainties in CO₂ price and investment cost are considered. A method that integrates the backward dynamic programming algorithm and Least-Squares Monte Carlo method is used to solve the model. The results demonstrate that the feed-in tariffs of 30 provinces range from 0.68 RMB/kWh to 1.71 RMB/kWh, and the average level is 1.01 RMB/kWh. On this basis, we find that the levels of sub-regional feed-in tariff announced in 2013 are no longer appropriate and should be adjusted as soon as possible. We have also identified the implications of technological progress and carbon emission trading schemes, as well as the importance of strengthening electricity transmission. It has been suggested that the Chinese government takes diverse measures, including increasing research and development investment, establishing and improving a nationwide carbon emission trading scheme and accelerating the construction of electricity-transmission infrastructure, to reduce the required feed-in tariff and promote the development of solar photovoltaic power generation.     

Analysis of the vehicle mix in the passenger-car sector in Japan for CO2 emissions reduction by a MARKAL model

Carbon dioxide (CO₂) emissions from the passenger-car sector in Japan are increasing rapidly and should be reduced cost-effectively in order to stabilize energy-related CO₂ emissions in Japan. The purpose of the present paper is to clarify the most cost-effective mix of vehicles for reducing CO₂ emissions and to estimate the subsidy that is necessary to achieve this vehicle mix. For this analysis, the energy system of Japan from 1988 to 2032 is modeled using a MARKAL model. The most cost-effective mix of vehicles is estimated by minimizing the total energy system cost under the constraint of an 8% energy-related CO₂ emissions reduction nationally by 2030 from the CO₂ emissions of 1990. Based on the results of the analysis, hybrid vehicles are the only type of clean-energy vehicle, and their share of the passenger car sector in 2030 will be 62%. By assuming the subsidization of hybrid vehicles, the same vehicle mix can be achieved without constraining CO₂ emissions. The peak of the total subsidy estimated to be necessary is 1.225 billion US$/year in 2020, but the annual revenue of the assumed 31 US$/t-C carbon tax from the passenger car sector is sufficient to finance the estimated subsidy. This suggests that we should support the dissemination of hybrid vehicles through subsidization based on carbon tax.     

Coal cleaning: a viable strategy for reduced carbon emissions and improved environment in China?

China is a dominant energy consumer in global context and current energy forecasts emphasise that China's future energy consumption also will rely heavily on coal. The coal use is the major source of the greenhouse gas CO₂ and particles causing serious health damage. This paper looks into the question if coal washing might work as low cost strategy for both CO₂ and particle emission reductions. Coal washing removes dirt and rock from raw coal, resulting in a coal product with higher thermal energy and less air pollutants. Coal cleaning capacity has so far not been developed in line with the market potential. In this paper an emerging market for cleaned coal is studied within a CGE model for China. The macro approach catches the repercussions of coal cleaning through increased energy efficiency, lower coal transportation costs and crowding out effect of investments in coal washing plants. Coal cleaning stimulates economic growth and reduces particle emissions, but total energy use, coal use and CO₂ emissions increase through a rebound effect supported by the vast reserve of underemployed labourers. A carbon tax on fossil fuel combustion has a limited effect on total emissions. The reason is a coal leakage to tax exempted processing industries.     

The perspectives of energy production from coal‐fired power plants in an enlarged EU

The aim of this paper is to present the current status of the coal‐fired power sector in an enlarged EU (EU‐15 plus EU member candidate states) in relation with the main topics of the European Strategy for the energy production and supply. It is estimated that 731 thermoelectric units, larger than 100 MW_e, are operating nowadays, and their total installed capacity equals to 200.7 GW_e. Coal contribution to the total electricity generation with reference to other fuel sources, is by far more intensive in the non‐EU part (EU member candidate states), compared to the EU member states. It is expected that even after the enlargement, the European Union will strongly being related to coal. Enlargement will bring additional factors into play in order to meet the requirements of rising consumption, growing demand for conventional fuels and increasing dependence on imports. Besides the technology, boiler size, efficiency, age and environmental performance will determine the necessities of the coal‐fired power sector in each country. Depending on the case, lifetime extension measures in operating coal‐fired power plants or clean coal technologies can play an important role towards the energy sector restructuring. Low efficiency values in the non‐EU coal‐fired units and heavily aged power plants in EU countries will certainly affect decisions in favour of upgrading or reconstruction. The overall increase of efficiency, the reduction of harmful emissions from generating processes and the co‐combustion of coal with biomass and wastes for generating purposes indicate that coal can be cleaner and more efficient. Additionally, plenty of rehabilitation projects based on CCT applications, have already been carried out or are under progress in the EU energy sector. The proclamations of the countries' energy policies in the coming decades, includes integrated renovation concepts of the coal‐fired power sector. Further to the natural gas penetration in the electricity generation and CO₂ sequestration and underground storage, the implementation of CCT projects will strongly contribute to the reduction of CO₂ emissions in the European Union, according to the targets set in the Kyoto protocol. In consequence, clean coal technologies can open up new markets not only in the EU member candidate states, but also in other parts of the world. Copyright © 2004 John Wiley & Sons, Ltd.     

Estimates of inter-fuel substitution possibilities in Chinese chemical industry

The chemical sector is a key driver of China's remarkable growth record and accounts for about 10% of the country's GDP. This has made the industry energy-intensive and consequently a major contributor to greenhouse gas emissions (GHG) and other pollutants. This study has attempted to investigate the potential for inter-fuel substitution between coal, oil, natural gas and electricity in Chinese chemical sector by employing a translog production and cost function. Ridge regression procedure was adopted to estimate the parameters of the function. Estimation results show that all energy inputs are substitutes. In addition, the study produces evidence that the significant role of coal in the Chinese chemical fuel mix converges over time, albeit slowly. These results suggest that price-based policies, coupled with capital subsidy programs can be adopted to redirect technology use towards cleaner energy sources like electricity and natural gas; hence, retaining the ability to fuel the chemical sector, while also mitigating GHG emissions. Notwithstanding, one must understand that the extent to which substituting electricity for coal will be effective depends on the extent to which coal or oil is used in generating electricity. The findings of this study provide general insights and underscore the importance of Chinese government policies that focus on installed capacity of renewable electricity, energy intensity targets as well as merger of enterprises.     

Taxing CO2 and subsidising biomass: analysed in a macroeconomic and sectoral model

This paper analyses the combination of taxes and subsidies as an instrument to enable a reduction in CO₂ emission. The objective of the study is to compare recycling of a CO₂ tax revenue as a subsidy for biomass use as opposed to traditional recycling such as reduced income or corporate taxation.A model of Denmark’s energy supply sector is used to analyse the effect of a CO₂ tax combined with using the tax revenue for biomass subsidies. The energy supply model is linked to a macroeconomic model such that the macroeconomic consequences of tax policies can be analysed along with the consequences for specific sectors such as agriculture. Electricity and heat are produced at heat and power plants utilising fuels which minimise total fuel cost, while the authorities regulate capacity expansion technologies. The effect of fuel taxes and subsidies on fuels is very sensitive to the fuel substitution possibilities of the power plants and also to the extent to which expansion technologies have been regulated.It is shown how a relatively small CO₂ tax of 15 US$/tCO₂ and subsidies for biomass can produce significant shifts in the fuel input-mix, when the expansion of production capacity is regulated to ensure a flexible fuel mix. The main finding is that recycling to biomass use will reduce the level of CO₂ tax necessary to achieve a specific emission reduction. Policies to ensure a more intensive use of such relatively expensive renewable energy sources as biomass could be implemented with only small taxes and subsidies.     

Economics and greenhouse gas balance of biogas use systems in the Finnish transportation sector

Energy decisions play an essential role in reducing greenhouse gas (GHG) emissions in the transportation sector. Biogas is a renewable energy source and can be used as an energy source for gas-operated cars or for electric cars. This paper compares different ways to use biogas, which is produced on a medium scale anaerobic digestion plants, as an energy source for transportation. The research is conducted from an economic and environmental point of view, and the option to deliver upgraded biogas via a natural gas grid is taken into account. Different processes for the use of biogas for transportation purposes are compared using life cycle assessment (LCA) methods in the Finnish operational environment. It seems that the most economical way is to use biogas in gas-operated cars due to the high price of methane for vehicle fuel use. A new feed-in tariff for electricity produced with biogas will, however, have highly positive economic effects on electricity production from biogas. From the environmental point of view, the highest CO₂ reductions are gained when biogas is used in gas-operated cars or in CHP plants for power and heat production. During the transition stage, it might be reasonable to use biogas in gas-operated cars and most importantly in heavy vehicles to reduce GHG and local pollutants rapidly. If biogas production is located near a natural gas grid, the biogas can be delivered effectively via the natural gas grid. The use of biogas in gas-operated cars is an effective way to reduce carbon dioxide significantly in the transportation sector.     

Analysis of the impacts of carbon taxes on energy systems in Japan

This research examines the impacts of using carbon and energy taxes to reduce carbon emissions from the Japanese energy system. A partial equilibrium model of the Japanese energy sector has been developed to forecast changes in the energy system out to the year 2040. The model accounts for the changes in energy technology capacities, fuels, and consumption in response to policy initiatives, such as taxes. We find that carbon and energy taxes will decrease carbon dioxide emission to a proposed target. The total cost in terms of supplying energy will be similar for either approach. However, the model also indicates that carbon taxes cause a shift in resources used from coal to gas. IGCC does not penetrate the market in carbon tax case. Since energy security is a primary concern to Japan, maintaining a diverse base of resources is very important. Policies that would eliminate coal, and efficient coal-based technologies, may not be desirable. The development of clean coal technologies and advanced transportation technologies suitable for Japan's energy systems should be the next target to overcome the limit of carbon taxes.     

Economics of herbaceous bioenergy crops for electricity generation: Implications for greenhouse gas mitigation

This paper examines the optimal land allocation for two perennial crops, switchgrass and miscanthus that can be co-fired with coal for electricity generation. Detailed spatial data at county level is used to determine the costs of producing and transporting biomass to power plants in Illinois over a 15-year period. A supply curve for bioenergy is generated at various levels of bioenergy subsidies and the implications of production for farm income and greenhouse gas (GHG) emissions are analyzed. GHG emissions are estimated using lifecycle analysis and include the soil carbon sequestered by perennial grasses and the carbon emissions displaced by these grasses due to both conversion of land from row crops and co-firing the grasses with coal. We find that the conversion of less than 2% of the cropland to bioenergy crops could produce 5.5% of the electricity generated by coal-fired power plants in Illinois and reduce carbon emissions by 11% over the 15-year period. However, the cost of energy from biomass in Illinois is more than twice as high as that of coal. Costly government subsidies for bioenergy or mandates in the form of Renewable Portfolio Standards would be needed to induce the production and use of bioenergy for electricity generation. Alternatively, a modest price for GHG emissions under a cap-and-trade policy could make bioenergy competitive with coal without imposing a fiscal burden on the government.     

Spatial analysis of renewable energy potential in the greater southern Appalachian mountains

This research discusses the implementation of a geographic information system (GIS) for the simultaneous discovery of multiple types of renewable energy sources. In particular, the GIS model analyzes wind, solar, and biomass potential within the greater southern Appalachian region, an area which is currently very heavily dependent on coal for electricity generation. The location and availability of biomass is specifically considered in the context of potential co-fire generation within existing coal plants, while the availability of wind and solar power are based on both resource strength and the geographic, topographic, and regulatory constraints that provide limits on their use. The model determines potential wind and solar sites within the region, and potential biomass co-fire locations, based on these input constraints and it calculates the cost and generation characteristics for each site.