Interactions of emission caps and renewable electricity support schemes

Over the last decades many OECD countries have implemented green quotas, feed-in tariffs, or feed-in premiums to promote electricity production from renewable energy sources (RES-E). More recently, these RES-E policies are overlaid with emission caps to reduce emissions. In this paper we investigate how emission caps change the electricity market outcome of pre-existing support schemes for renewable electricity production: with a green quota RES-E production declines, while it remains constant for feed-in tariffs, and expands for feed-in premiums; across all three RES-E policies an emission cap drives up the consumer electricity price with the price increase being lowest for the case of feed-in premiums; the economic adjustment cost to emission caps on the other hand turn out to be highest for pre-existing feed-in premiums, followed by feed-in tariffs and green quotas.