Is renewable energy a cost-effective mitigation resource? An application to the Spanish electricity market

Abstract

This paper evaluates the net effect of renewable energy policy in Spain from 2002 to 2017 and calculates its cost-effectiveness in terms of CO2 emission reductions in the production of electricity. Our conclusions indicate that although the phasing out of Feed-in Tariffs reduced the regulatory costs, it also limited renewable participation in the electricity market, leading to an increased electricity price and higher emissions. According to our results, the joint effect of (i) the value of avoided emissions due to renewable energy participation and (ii) the merit order effect was able to compensate for the regulatory costs (subsidies) up until 2010, while the sign of the net effect was reversed from 2011 to 2017. Finally, we find that the economic implications of emission reductions are highly dependent on how the social cost of carbon is measured. © 2018 Elsevier Ltd