Published April 29, 2015 by Kevin Novan.
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In an effort to reduce pollution from the electricity sector, governments are heavily subsidizing renewables. The subsidies, however, are not being used in isolation. Instead, they are often provided in regions where certain pollutants are regulated by cap-and-trade programs. I demonstrate that, when combined with a cap-and-trade program, renewable subsidies can cause an undesirable outcome – they can increase emissions of unregulated pollutants. Focusing on the region regulated by the Clean Air Interstate Rule, I show that, if the EPA sets a binding cap on NOX , expanding renewable capacity not only offsets zero tons of NOX , it will increase SO2 emissions.