Working Paper No. 968

Renewable Electricity Policy and Market Integration

Published: June 27, 2013, revised January, 2014Pages: 26Keywords: Market integration; Renewable electricity; Trade policy; Transmission investmentJEL-codes: D23; F15; Q48; Q56
Published version

Renewable Electricity Policy and Market Integration Thomas Tangerås


I analyze renewable electricity policy in a multinational electricity market with transmission investment. If national policy makers choose support schemes to maximize domestic welfare, then a trade policy motive arises operating independently of any direct benefit of renewable electricity. The model predicts electricity importing (exporting) countries to choose policies which reduce (increase) electricity prices. A narrow pursuit of domestic objectives distorts transmission investment, thereby market integration, below the efficient level. Distortions cannot be corrected by imposing national renewable targets alone. Instead, subsidies to transmission investment and a harmonization of and reduction in the number of policy instruments can improve welfare.

Thomas Tangerås

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thomas.tangeras@ifn.se

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Martin Ljunge, IFN, is the author of a chapter, "Trust promotes health: addressing reverse causality by studying children of immigrants", in a new book edited by Sherman Folland and Eric Nauenberg. The cutting edge of research is presented, covering the ever-expanding social capital field.

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