Environmental Economics and Policy Studies

, Volume 21, Issue 2, pp 255–283 | Cite as

Addressing multiple externalities from electricity generation: a case for EU renewable energy policy beyond 2020?

  • Paul LehmannEmail author
  • Jos Sijm
  • Erik Gawel
  • Sebastian Strunz
  • Unnada Chewpreecha
  • Jean-Francois Mercure
  • Hector Pollitt
Research Article


Subsidies to electricity generation from renewable energy sources (RES-E) implemented next to an emissions trading scheme (ETS) are frequently criticised for producing no additional benefit in terms of mitigating climate change and increasing the costs of emissions abatement. We re-assess the performance of this policy mix in a setting in which electricity generation produces multiple externalities (beyond climate change) and in which these externalities cannot be addressed by first-best policies. Using an analytical partial equilibrium model, we show that the optimal composition of the policy mix depends on the market interactions between the multiple externalities. We complement this analysis by a quantitative policy assessment, combining a top-down, global macro-economic model and a bottom-up, global electricity sector model. The quantitative analysis suggests that RES-E subsidies may be effective in partly reducing externalities from fossil fuel combustion (by crowding out gas- and oil-fired generation) and in mitigating radiation hazards (by crowding out nuclear generation). However, RES-E subsidies are not necessarily suited to address externalities related to the extraction and transportation of fossil fuels or risks of sudden supply interruptions for imported fuels. With respect to these latter externalities, tightening the ETS cap may be a more effective, but politically less feasible approach.


Climate policy Electricity Emissions trading EU Externalities Policy mix Renewables 

JEL Classification

C53 Q42 Q43 Q48 Q54 Q58 



We are grateful to two anonymous referees. Research for this paper was supported by the German Helmholtz Association (Grant number HA-303). Paul Lehmann additionally received funding from the German Ministry of Education and Research (Grant number 01UU1703).


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Copyright information

© Society for Environmental Economics and Policy Studies and Springer Japan KK, part of Springer Nature 2018

Authors and Affiliations

  • Paul Lehmann
    • 1
    • 2
    Email author
  • Jos Sijm
    • 3
  • Erik Gawel
    • 1
    • 2
  • Sebastian Strunz
    • 1
  • Unnada Chewpreecha
    • 4
  • Jean-Francois Mercure
    • 4
    • 5
    • 6
  • Hector Pollitt
    • 4
    • 5
  1. 1.Department of EconomicsHelmholtz Centre for Environmental Research-UFZLeipzigGermany
  2. 2.Institute for Infrastructure and Resources ManagementUniversity of LeipzigLeipzigGermany
  3. 3.ECN part of TNO, Energy Transition StudiesAmsterdamThe Netherlands
  4. 4.Cambridge EconometricsCambridgeUK
  5. 5.Cambridge Centre for Environment, Energy and Natural Resource Governance (C-EENRG)University of CambridgeCambridgeUK
  6. 6.Department of Environmental ScienceRadboud UniversityNijmegenThe Netherlands

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