Working paper

Comparing volume and blend renewable energy mandates under a carbon budget

Jean-Pierre Amigues, Ujjayant Chakravorty, Gilles Lafforgue, and Michel Moreaux

Abstract

In order to encourage substitution of fossil fuels by cleaner renewables, regulatory agencies have generally chosen between two types of renewable energy standards. They have either mandated a minimum volume of renewable energy as in the case of ethanol in transport fuels, and for electricity in Texas and Iowa. Or they have specified a minimum blend (share) of renewables in the energy supply mix as in California, Michigan and many other states. This paper uses a simple model to compare the dynamic effects of these two policies. We show that a volume mandate leads to a lower energy price, induces a greater subsidy on clean energy and a smaller fossil fuel tax than the blend mandate. The volume mandate also leads to larger cumulative renewable energy use over the time horizon. We illustrate the model with plausible parameter values and show that the two energy mandates lead to large differences in fossil fuel taxes and clean energy subsidies.

Keywords

Renewable energy mandates; Fossil fuels; Energy transition; Subsidies; Carbon tax;

JEL codes

  • Q42: Alternative Energy Sources
  • Q48: Government Policy
  • Q54: Climate • Natural Disasters • Global Warming

Reference

Jean-Pierre Amigues, Ujjayant Chakravorty, Gilles Lafforgue, and Michel Moreaux, Comparing volume and blend renewable energy mandates under a carbon budget, TSE Working Paper, n. 20-1138, August 2020.

See also

Published in

TSE Working Paper, n. 20-1138, August 2020