AW: subsidies for renewable energies and the environment
How did you arrive at this conclusion? It seems to me that if you lower the cost of renewable resources, that will result in less exhaustable resources being extracted, since some of the exhaustable resources that could previously be extracted profitably would now remain in the ground. I think that this could only be if subsidies payed up to the exquilibrium price of all exhaustable ressources. But this is not the case. Only a small part of renewable energies gets subsidies and this not in all countries. This implicates only a slow progress of back-stop-technologies and a reduction of exquilibrium prices for exhaustible ressources. The theory of exhaustible ressources predicts a lowering of marginal user costs and a extraction path that cause a complete exploitation if marginal costs of renewable will reached. Clearly that's the ideal policy, but if it's not possible to have polluters pay the social cost (which is sometimes the case), is it a good idea to subsidize less-polluting alternatives? Since that can reduce the total amount of pollution, I think the answer is yes, as long as the cost of the subsidies is lower than the benefit of reduced pollution. Indeed subsidies can be equivalent solution to the polluter pay principle. This depends on what is the cheapest way to prevent pollution (Coase). But I think, that this is not the point here. If you want to prevent pollution the best way is to tax or subsidies pollution, not oil or clean technologies. Steffen
The Journal of Interesting Economics
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Re: subsidies for renewable energies and the environment
On Fri, Nov 16, 2001 at 10:31:22AM +0100, Hentrich, Steffen wrote: I think that this could only be if subsidies payed up to the exquilibrium price of all exhaustable ressources. But this is not the case. Only a small part of renewable energies gets subsidies and this not in all countries. This implicates only a slow progress of back-stop-technologies and a reduction of exquilibrium prices for exhaustible ressources. The theory of exhaustible ressources predicts a lowering of marginal user costs and a extraction path that cause a complete exploitation if marginal costs of renewable will reached. I don't completely understand this paragraph since several sentences don't seem to make sense. (What is exquilibrium? Is that a typo of equilibrium? What does marginal costs of renewable will be reached mean? Reached by what?) From what I can figure out, a subsidy on renewable resources has two effects. One, it reduces the total amount of exhaustable resources extracted over all time. Two, it shifts some of the remaining extraction closer in time to the present. So it's not clear that the subsidy is beneficial overall. Is that what you mean?
