The Efficiency and Sectoral Distributional Impacts of Large-Scale Renewable Energy Policies

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Renewable energy policies have grown in popularity. Given that renewable energy costs are mostly nonmarginal, due to the large presence of fixed costs, there are many different ways to implement these policies in both the environmental design and retail pricing margins. I show that the efficiency and distributional implications of large-scale policies crucially depend not only on the design of wholesale policies to incentivize renewables but also on how the costs of such policies are passed-through to consumers. Using data from the California electricity market, I develop a model to illustrate the interaction between large-scale renewable energy policies (carbon taxes, feed-in tariffs, and renewable portfolio standards) and their pricing to final consumers under alternative retail pricing schemes (no pass-through, marginal fees, fixed flat tariffs, and Ramsey pricing). I focus on the trade-off between charging residential versus industrial consumers to highlight tensions between efficiency, distributional, and environmental goals.