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Comparing Renewable Energy Policies in EU-15, U.S. and China: A Bayesian DSGE Model

The promotion of renewable energy sources (RES) by governments is one way of helping countries to meet their energy needs while lowering greenhouse gas emissions. In this paper, we examine the role of energy policy in RES promotion, based on a carbon tax and RES price subsidy, at a time of technological and demand shocks in the European Union (E.U.) 15 countries, the United States (U.S.) and China, focusing on the macroeconomic implications. Using a dynamic stochastic general equilibrium model for RES and fossil fuels, our results suggest that, in the presence of a total factor productivity shock in the fossil fuel sector, such an energy policy can also be a driving force for smoothing the reduction of RES in the energy market (and vice versa). Additionally, we show that the E.U.15 grouping has a comparative advantage in terms of reaching grid parity compared with the other countries we considered which are more fossil fuel dependent.

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JEL Codes: Q35: Hydrocarbon Resources, Q31: Nonrenewable Resources and Conservation: Demand and Supply; Prices, Q40: Energy: General, Q41: Energy: Demand and Supply; Prices

Keywords: renewable energy sources, fossil fuels, productivity shocks, price subsidy, dynamic stochastic general equilibrium model

DOI: 10.5547/01956574.38.SI1.aarg

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Published in Volume 38, KAPSARC Special Issue of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.


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