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Renewable Energy Subsidies: Second-Best Policy or  Fatal Aberration for Mitigation? / Matthias Kalkuhl, Ottmar Edenhofer, Kai Lessmann. FEEM, 2011, 32 p. (Note di lavoro ; 2011.048)http://www.feem.it/userfiles/attach/2011620942454NDL2011-048.pdfThis paper evaluates the consequences of renewable energy policies on  welfare, resource rents and energy costs in a world where carbon pricing is  imperfect and the regulator seeks to limit emissions to a (cumulative) target.  We use a global general equilibrium model with an intertemporal fossil resource  sector. We calculate the optimal second-best renewable energy subsidy and  compare the resulting welfare level with an efficient first-best carbon pricing  policy. If carbon pricing is permanently missing, mitigation costs increase by a  multiple (compared to the optimal carbon pricing policy) for a wide range of  parameters describing extraction costs, renewable energy costs, substitution  possibilities and normative attitudes. Furthermore, we show that small  deviations from the second-best subsidy can lead to strong increases in  emissions and consumption losses. This confirms the rising concerns about the  occurrence of unintended side effects of climate policy { a new version of the  green paradox. We extend our second-best analysis by considering two further  types of policy instruments: (1) temporary subsidies that are displaced by  carbon pricing in the long run and (2) revenue-neutral instruments like a carbon  trust and a feed-in-tariff scheme. Although these instruments cause small  welfare losses, they have the potential to ease distributional conflicts as they  lead to lower energy prices and higher fossil resource rents than the optimal  carbon pricing policy. (© authors)