Who bears the burden of greening electricity?

Abstract

Faced with the threat of climate change many countries are promoting renewable energies to decarbonize their energy system. A common policy to foster electricity from renewable energy sources are feed-in tariffs which are financed by surcharges on electricity prices. Higher electricity prices in turn raise concerns on regressive distributional impacts. In this paper, we investigate the distributional impacts of three alternative policies to subsidize renewable energy production in Spain: (i) exemptions from the electricity surcharge for residential consumers, (ii) an increase in mineral oil taxes, and (iii) an increase in value-added taxes. We find that all three options can attenuate the regressive distributional effects compared to feed-in tariffs. For our quantitative impact assessment, we couple a microsimulation model with a computable general equilibrium model to capture the incidence on heterogeneous households in an economy-wide framework.