Effectiveness of Climate Policies: Carbon Pricing vs. Subsidizing Renewables

Liebensteiner M, Gugler K, Haxhimusa A (2021)

Publication Type: Journal article, Original article

Publication year: 2021


Book Volume: 106

Pages Range: 102405

DOI: 10.1016/j.jeem.2020.102405

Open Access Link: https://doi.org/10.1016/j.jeem.2020.102405


Most economists view carbon pricing as most effective to combat carbon emissions,

whereas other policies are widely applied and highly debated. We quantify the effectiveness

of climate policies in the form of pricing carbon and subsidizing renewable energies for Germany’s

and Britain’s power sectors. While Germany relies on heavy subsidies for wind and

solar power but on a weak price for carbon certificates (EUA) from the EU Emission Trading

System (ETS), its emissions hardly declined. To underpin the relatively ineffective EUA price,

Britain introduced a unilateral tax on power sector emissions, the Carbon Price Support (CPS).

Within only five years, carbon emissions declined by 55%. Our results demonstrate that in the

power sector, even a modest carbon price (~30 EUR/tCO2) can induce significant abatement

at low costs within a short period as long as "cleaner" gas plants exist to replace "dirty" coal

plants. We also find that pricing carbon is superior to subsidizing wind or solar power in these

two countries, as predicted by economic theory.

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How to cite


Liebensteiner, M., Gugler, K., & Haxhimusa, A. (2021). Effectiveness of Climate Policies: Carbon Pricing vs. Subsidizing Renewables. Journal of Environmental Economics and Management, 106, 102405. https://dx.doi.org/10.1016/j.jeem.2020.102405


Liebensteiner, Mario, Klaus Gugler, and Adhurim Haxhimusa. "Effectiveness of Climate Policies: Carbon Pricing vs. Subsidizing Renewables." Journal of Environmental Economics and Management 106 (2021): 102405.

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