Lafforgue, Gilles, Amigues, Jean-Pierre, Chakravorty, Ujjayant and Moreaux, Michel (2022) Comparing volume and blend renewable energy mandates under a carbon budget. Annals of Economics and Statistics (N° 147). pp. 51-78.

Abstract

In order to encourage substitution of fossil fuels by cleaner renewables,
regulatory agencies have generally chosen between two types of renewable
energy standards. They have either mandated a minimum volume of renewable energy as in the case of ethanol in transport fuels, and for electricity in
Texas and Iowa. Or they have specified a minimum blend (share) of renewables in the energy supply mix as in California, Michigan and many other
states. This paper uses a simple model to compare the dynamic effects of
these two policies. We show that a volume mandate leads to a lower energy
price, induces a greater subsidy on clean energy and a smaller fossil fuel tax
than the blend mandate. The volume mandate also leads to larger cumulative renewable energy use over the time horizon. We illustrate the model
with plausible parameter values and show that the two energy mandates
lead to large differences in fossil fuel taxes and clean energy subsidies.

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