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Analyzing the Effects of Renewable Energy and Climate Conditions on Consumer Welfare

Abstract:
This paper aims to measure the impact of the gradual adoption of Renewable Energy Sources (RES) on the welfare of consumers. To this end, we construct a theoretically founded measure of the true cost of living (TCL) and the equivalence scale (ES) for the household sector, based on a weather database of heating and cooling degree days. We estimate those values for 64 countries, which represent over two-thirds of the world population, according to World Bank statistics. We assume that the identified household in each country minimizes its expenditure on energy and other goods. We simulate alternate scenarios of renewables implementation in 2035, taking account of different RES prices, and assess the related societal implications of a gradual transition from fossil fuels to RES. The empirical results offer policymakers a basis for designing appropriate scenarios for the deployment of renewables, with the aim of fostering consumer welfare even in the context of international negotiations.

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Keywords: Renewable Energy Sources, Complete demand system, Energy consumption, Cost of living, Equivalence scale

DOI: 10.5547/01956574.38.SI1.tata

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Published in Volume 38, KAPSARC Special Issue of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.