Cost-effectiveness and incidence of alternative mechanisms for financing renewables

The study evaluates the impact of financing renewable energy through electricity surcharges versus alternative tax sources in Spain. Using a combined computable general equilibrium (CGE) and microsimulation (MS) model, the authors find that electricity surcharges are regressive, disproportionately affecting low-income households and vulnerable groups such as retirees. While exemptions for producers protect industrial competitiveness, they exacerbate the burden on households. Conversely, financing through lump-sum transfers or value-added taxes (VAT) is found to be more effective in reducing regressive effects and safeguarding welfare for low-income groups without significantly harming overall economic output.

• Financing the promotion of renewables through an electricity surcharge is regressive because it disproportionately affects low-income households, who spend a larger share of their income on electricity.
• Exempting producers from the renewable energy surcharge protects industrial competitiveness and increases output in energy-intensive sectors, but it is the most regressive option as it shifts the financial burden to households.
• Exempting households from the surcharge relieves welfare impacts for the poorest groups but negatively affects the output of energy-intensive industries.
• Alternative financing mechanisms, specifically lump-sum transfers and value-added taxes (VAT), are the most cost-effective and best at safeguarding the welfare of low-income groups.
• Increasing oil taxes to finance renewables has a neutral distributional impact on average but can be progressive when focusing on households with the greatest welfare losses; however, it negatively impacts the oil and transport sectors.
• Vulnerable populations, particularly retired persons and single-parent households, are most susceptible to energy poverty and suffer the greatest welfare losses when electricity prices increase due to producer exemptions.

APA

Garcia-Muros, X., Böhringer, C., & Gonzalez-Eguino, M. (2017). Cost-effectiveness and incidence of alternative mechanisms for financing renewables. Basque Centre for Climate Change. https://www.bc3research.org/h6T8Uy8Nm4gFs0O/20171026095527338831234.pdf

Chicago

Garcia-Muros, Xaquin, Christoph Böhringer, and Mikel Gonzalez-Eguino. Cost-effectiveness and incidence of alternative mechanisms for financing renewables. Basque Centre for Climate Change, 2017. https://www.bc3research.org/h6T8Uy8Nm4gFs0O/20171026095527338831234.pdf.

Wikipedia

{{cite report |last1=Garcia-Muros |first1=Xaquin |last2=Böhringer |first2=Christoph |last3=Gonzalez-Eguino |first3=Mikel |title=Cost-effectiveness and incidence of alternative mechanisms for financing renewables |publisher=Basque Centre for Climate Change |date=October 2017 |url=https://www.bc3research.org/h6T8Uy8Nm4gFs0O/20171026095527338831234.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{garciamuros2017costeffectiveness, author = {Garcia-Muros, Xaquin and Böhringer, Christoph and Gonzalez-Eguino, Mikel}, title = {{Cost-effectiveness and incidence of alternative mechanisms for financing renewables}}, institution = {Basque Centre for Climate Change}, year = {2017}, month = oct, url = {https://www.bc3research.org/h6T8Uy8Nm4gFs0O/20171026095527338831234.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }