Valuing the Wind: Renewable Energy Policies and Air Pollution Avoided

Abstract

Exploiting variation in the hourly production from wind turbines, this paper quantifies the heterogeneity in the marginal impact of renewable electricity on pollution. The results reveal that output from competing renewable capacity additions—e.g., wind turbines versus solar panels—provide different marginal external benefits. This finding suggests that, if governments continue to subsidize renewables, an emphasis should be placed on designing policies that internalize the heterogeneous benefits. More generally, my results highlight that, by incorrectly assuming renewable electricity is a homogenous good, we will understate the relative efficiency of the first-best pollution prices. (JEL L94, L98, Q42, Q48, Q51, Q53, Q58)