Synergies and Welfare Effects of Combining Carbon Pricing and Renewable-Energy Policies: A Meta-Analysis

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Abstract
Many countries combine carbon pricing with renewable-energy policies. Microeconomic theory predicts this combination yields no additional emissions reductions under cap-and-trade and only potentially under carbon taxation, but at a social welfare loss. We undertook a systematic literature review of emissions-reduction synergy, identifying many ex-ante but only one ex-post study – explained by the lack of policy counterfactuals. In 72% of ex-ante 127 estimates from 80 studies, combining instruments reduces emissions more than either instrument alone. Additional reductions are more common under carbon taxation, as theory predicts, but also occur under cap-and-trade. Across 85 exact synergy estimates, the policy combination yields about 22% greater emissions reductions on average. Regarding welfare effects, 74 of 119 ex-ante estimates from 79 papers indicate some benefit from adding a second instrument. Deviations from theory reflect model assumptions, such as incomplete emissions coverage, implementation constraints, social welfare metrics limited to consumer utility, and market or government failures including fossil fuel subsidies. While ex-post estimates are less likely to detect non-zero synergy, the single ex-post study broadly supports our findings.
Funding Information
  • Universitat Autònoma de Barcelona

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