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Title
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Green capacity investment under subsidy withdrawal risk
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Author
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Abstract
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| Subsidies initially installed to stimulate green capacity investments tend to be withdrawn after some time. This paper analyzes the effect on investment of this phenomenon in a dynamic framework with demand uncertainty. We find that increasing the probability of subsidy withdrawal incentivizes the firm to accelerate investment at the expense of a smaller investment size. A similar effect is found when subsidy size as such is increased. When subsidy withdrawal risk is zero or very limited, installing a subsidy could increase welfare. In general we get that the larger the subsidy withdrawal probability, the smaller the welfare maximizing subsidy rate is. Therefore, a policy maker aiming to maximize welfare should try to reduce subsidy withdrawal risk. (c) 2021 Published by Elsevier B.V. |
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Language
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English
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Source (journal)
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Energy economics. - Guildford, 1979, currens
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Publication
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Guildford
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2021
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ISSN
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0140-9883
[print]
1873-6181
[online]
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DOI
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10.1016/J.ENECO.2021.105259
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Volume/pages
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98
(2021)
, p. 1-21
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Article Reference
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105259
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ISI
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000659334500018
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Medium
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E-only publicatie
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Full text (Publisher's DOI)
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Full text (open access)
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