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Abstract

Production subsidies for renewable energy have experienced intermittent support from the federal government. One reason for less than united support arises from uncertainty over the environmental impact of projects implemented because of such subsidies. Wind energy in particular has taken advantage of federal subsidies, but what has been the environmental impact? Taking investment in wind capacity as given, I am able to identify the short run substitution patterns between wind power and conventional power for one geographic area of the US electric grid. I exploit the exogenous nature of wind to identify generator level substitution of wind generated electricity for conventionally generated electricity. I then quantify the avoided emissions and associated costs using generator level emissions information and market clearing prices for pollution permits. The end result is the value of avoided emissions due to government subsidies.

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