Welfare and Environmental Effects of Subsidies and Tariffs in North-South Trade in Renewable Energy Equipment

A two-country, three-good general equilibrium model is developed to examine the welfare and environmental effects for countries (North and South) of demand subsidies (a feed-in tariff) to renewable energy equipment, as well as tariffs on renewable energy equipment imports. Both North and South renewable energy equipment producers engage in Cournot duopoly competition with a homogeneous product in both countries. Both countries also produce polluting fossilfuel- generated electricity and a numeraire good. We show, inter alia, that an endogenous Northern import tariff is increasing in (independent of) a Northern (Southern) feed-in tariff premium, even if the North government does not internalize any pollution harm. A Northern feed-in tariff premium may hurt domestic environment due to a rebound effect and it may also hurt Southern welfare.1

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JEL Codes:
F12; F18; H23; Q58

 Record created 2017-04-01, last modified 2019-08-29

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