Strategic technology policy as supplement to renewable energy standards
Renewable energy standards have been introduced in several countries as a supplement to climate policy. Some countries have also subsidized the use of renewable energy or the producers of renewable energy capital. In this subproject we examine the rational for such policies.
Our point of departure is that a renewable energy standard creates new profit opportunities for firms that supply renewable energy capital. With imperfect competition among technology suppliers, technology policy could be used strategically. We consider both downstream subsidies to renewable energy suppliers and upstream subsidies to renewable energy capital producers. To the extent that there is imperfect competition upstream, subsidies may improve welfare both globally and nationally. Moreover, upstream subsidies are preferred over downstream subsidies from a national perspective. Finally, we show that strategically chosen subsidies by individual countries could in fact be optimal from a global perspective, given that the shadow price of emissions is correct from a global perspective.