Question

What is the first-best policy instrument to mitigate climate change in the energy industry? How does the performance of subsidies for renewable energy compare with the first-best policy? (Response can be in list form here.)

Answer 1

Solution:

• According to the first -best policy instrument to mitigate climate change in the energy industry it relates  with respect to the effects of distortionary taxes on the carbon rate structure acccording to this An emitter must pay this per-unit tax or fee regardless of how much emission reduction is being undertaken.8 Each emitter weighs the cost of emissions control against the cost of emitting and paying the tax.

The performance of the subsidies for renewable energy compared with the first -best policy is much better and efficient.

• In future ithe total energy usage is predicted to rise between 25% and 35% by 2040 due to increasing population and higher global GDP. So the projections are that in the future, we will use more energy, and a larger share of that energy will be from renewable sources as compared to that of hydrocarbons.
• According to a report In 2017 in the United States, wind and solar represented almost half of new electricity generation capacity.
• according to it $18.4 billion was spent on energy subsidies; $11 billion of that went to renewable energy and $3 billion to energy efficiency.
• Now giving subsidies for renewable energy sources will give an better alternate and also help mitigate the climate changes in a better manner.
• Also subsidies have subsidies have done is help bring down the cost curve for wind and solar energy. Today we see dramatically lower costs for both wind and solar. Hence subsidy in renewable energy source is an important step .

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