Understanding Sector Coupling : The General Equilibrium Emissions Effects of Electro-Technology and Renewables Deployment

In a general equilibrium model we clarify conditions for abatement-effective sector coupling. First, if the electricity sector is put under emissions trading any additional electricity consumption will be emission-free, such that relative emissions intensities do not matter for electro-technology support schemes. Second, abatement through fuel-electricity substitution is then mitigated by power price adjustments. Third, subsidizing renewables indirectly subsidizes electro-technology. Finally, renewables support yields a “double green dividend” by inducing emissions reductions through a shift of production factors to the clean electricity sector at the expense of polluting industries, and indirectly through making electric power cheaper relative to fossil fuels. There is thus strong complementary between renewables deployment and support of electro-technology. The results are important for the design and assessment sector coupling frameworks, contribute to the literatures of overlapping instruments in pollution control and renewable energy promotion with a climate policy objective, and extend them in a new direction by explicitly considering support of electro-technology