Are Renewable Quotas Effective to Reduce CO2 Emissions?
We quantify the intertemporal impact of a renewable quota on CO2 emissions, pollution and welfare. We find that a quota substitutes investments in baseload technologies. Therefore quotas have little impact on CO2 and pollution in systems that expand baseload with hydro. We also find that quotas can be quite expensive and their impact is highly nonlinear. With detailed data on Chile’s system we estimate that a 5% quota is not binding, a 10% quota causes a small deadweight loss but a 20% quota multiplies the deadweight loss by a factor of 55, to about 7% of the system’s supply cost.