Effect of Combining Carbon Policies and Price Controls in Cross-Border Trade of Energy on Renewable Generation Investments

• Published in: The Energy journal (Cambridge, Mass.) Mass.), 2024-01, Vol.45 (1), p.81-103
• Main Authors: Carlos Muñoz, Juan, Oliva H., Sebastian, Sauma, Enzo
• Format: Article
• Language: English
• Subjects: Alternative energy sources; Borders; Carbon; Clean technology; Climate change; Consumer protection; Consumers; Electricity; Electricity generation; Electricity pricing; Emission standards; Emissions trading; Energy consumption; Energy efficiency; Energy policy; Energy prices; Environmental tax; International trade; Investments; Policies; Price regulations; Pricing policies; Renewable energy; Subsidies; Tariffs; Taxation; Wage & price controls
• ISSN: 0195-6574; 1944-9089
• DOI: 10.5547/01956574.45.1.jmun

In this paper, we investigate the combined effect of carbon policies and price controls in cross-border trade of electricity on power generation investments. It has been shown that price controls in cross-border trade of electricity may negatively affect renewable energy investments. However, the assessment of the impact of the simultaneous adoption of carbon policies and energy price controls has still not been addressed. Assessing this interaction is important to find out whether carbon policies can offset the negative impact of price controls on renewable energy investments or not. Results show that carbon policies can partially offset the negative impact of price controls, and that cap-and-trade programs are more effective to prevent this negative impact than carbon taxes. On the other hand, high levels of carbon taxes combined with price control regulation may increase renewable capacity investments, but without completely offsetting the negative effect of the price controls.