Environment, Development and Sustainability

, Volume 20, Issue 3, pp 1213–1227 | Cite as

Renewable energy subsidies versus carbon capture and sequestration support

Article

Abstract

We propose an equilibrium model where final-goods production uses labor and energy, and energy production uses non-polluting Renewable Energy Sources (RES) and polluting fossil fuels. Our goal is to compare two alternative Green Tax Reforms (GTRs). In one of the GTRs, carbon tax revenues are used to support Carbon Capture and Sequestration (CCS) activities. In the other GTR, tax revenues are used to subsidize RES. The comparison between the two GTRs is focused on three indicators: output per worker, energy intensity and the ratio of renewables over non-renewables. Results show that, in theory, the GTR with the RES subsidy could benefit both the economy and the environment if resource substitution was strong enough. The GTR with CCS support necessarily decreases output since abatement only partially alleviates the tax burden. The empirical simulation indicates that, for most tax values, both GTRs imply an economic slowdown but benefit the environment. The GTR with RES subsidies appears to be preferable than the alternative one, especially for lower tax levels.

Keywords

Carbon capture and sequestration Renewable energy sources, Environmental policy Economy 

JEL Classification

O44 Q32 Q43 Q48 

Notes

Acknowledgments

Susana Silva gratefully acknowledges the financial support of “Fundação para a Ciência e Tecnologia” (FCT - Portugal), through the Grant SFRH/BPD/86707/2012.

Compliance with ethical standards

Conflict of interest

The authors declare that they have no conflict of interest.

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Copyright information

© Springer Science+Business Media Dordrecht 2017

Authors and Affiliations

  1. 1.Faculdade de Economia da Universidade do Porto (FEP)PortoPortugal
  2. 2.CEF.UPPortoPortugal
  3. 3.GOVCOPP - Unidade de Investigação em Governança, Competitividade e Políticas Públicas DEGEIT - Departamento de Economia, Gestão, Engenharia Industrial e TurismoUniversidade de AveiroAveiroPortugal

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