The Welfare Economics Of Alternative Renewable Resource Strategies PDF Download

With one of the most complicated and ambitious renewable energy policies in the country, California's wholesale electricity market is severely understudied in terms of the interaction effects between different policies. We focus on two key policy measures: production and investment tax benefits received by renewable electricity producers, and the blend mandate, Renewable Portfolio Standard (RPS). The impact of each policy set on market distortions and GHG emissions and their interactions are analyzed. We simulate alternative policy scenarios in the market using a partial equilibrium model, and see how changing each policy affects the equilibrium prices and quantities. Furthermore, using standard welfare measures, we compute the welfare gains and losses of the scenarios and show how different groups are affected by them. We find that the existence of both policies are mutually detrimental relative to having a sole policy of either a blend mandate or a renewable production subsidy, as the mandate exacerbates the negative effect a subsidy has on the market and the subsidy mitigates the positive effect blend mandate has on reducing GHG emissions. Total social welfare declines with either the observed blend mandate alone or production subsidies alone, but the reductions accelerate when the two policies are combined. We conclude that having RPS by itself is best if our policy goal is to decrease GHG emissions to an efficient level, and that pricing carbon is best if our policy goal is to maximize social welfare in reducing GHG emissions, regardless of the amount.