Working Paper: NBER ID: w17695
Authors: Severin Borenstein
Abstract: Generating electricity from renewable sources is more expensive than conventional approaches, but reduces pollution externalities. Analyzing the tradeoff is much more challenging than often presumed, because the value of electricity is extremely dependent on the time and location at which it is produced, which is not very controllable with some renewables, such as wind and solar. Likewise, the pollution benefits from renewable generation depend on what type of generation it displaces, which also depends on time and location. Without incorporating these factors, cost-benefit analyses of alternatives are likely to be misleading. However, other common arguments for subsidizing renewable power - green jobs, energy security and driving down fossil energy prices - are unlikely to substantially alter the analysis. The role of intellectual property spillovers is a strong argument for subsidizing energy science research, but less persuasive as an enhancement to the value of installing current renewable energy technologies.
Keywords: renewable energy; electricity generation; pollution externalities; subsidies
JEL Codes: L94; Q42; Q48
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Renewable generation (Q42) | Reduced pollution externalities (H23) |
| Displacement of conventional generation (L94) | Overall environmental benefits (Q56) |
| Subsidizing renewable energy arguments (Q42) | Valuation of renewable energy (Q51) |