"Effects of Consumer Subsidies for Renewable Energy on Industry Growth and Welfare: Japanese Solar Energy"

Myojo, Satoshi and Hiroshi Ohashi

This paper examines the effectiveness of consumer subsidies to encourage the installment of solar panels in Japan. Such subsidies can be justi…ed on the ground that the prices to consumers of the conventional energy alternative do not re‡ect their full social costs. The paper investigates two types of subsidies: buy-back rebates and feed-in tariffs. Estimates reveals modest demand elasticity and small learning e¤ect. Simula- tions, based on structural demand and supply estimates, indicate that the subsidies can have either bene…cial or detrimental effects on social welfare. The paper concludes that the impacts of the subsidies critically rely on the cost structure and the magnitude of external costs arising from greenhouse emissions.