Evaluating the impacts of renewable energy promotion policies on sustainable development: A computable general equilibrium model approach

Previous research has examined the double-dividend effects of renewable energy expansion policies, but the impact of financing mechanisms used to support this expansion has been overlooked. To address this gap, our study analyzes the economy-wide impacts of renewable energy expansion policies in Korea, with a specific focus on financing mechanisms. We employ a recursive dynamic computable general equilibrium model that considers imperfections in labor markets, heterogeneous households, and various electricity generation technologies. Our analysis examines the effects of various financing options for renewable energy on economic growth, the labor market, and social welfare, both with and without emission regulations. Our results reveal a trade-off between efficiency and equality when it comes to financing renewable energy expansion. Specifically, we find that financing the expansion through a lump-sum tax is the most efficient option, resulting in the smallest reduction in GDP compared to the business-as-usual scenario. However, this option also has the greatest negative impact on income inequality, as it leads to an increase in skill premiums and capital prices, exacerbating income disparities between households. Our findings suggest that renewable energy expansion tends to be regressive, with lowincome households bearing a relatively larger burden of the costs associated with the expansion. Policymakers need to consider a range of options for alleviating income inequality and labor market disparity, such as targeted subsidies or transfers, to ensure a fair and efficient transition to a sustainable energy system.