Subsidies in carbon finance for promoting renewable energy development

• Published in: Journal of cleaner production Vol. 139; pp. 677 - 684
• Main Authors: Nie, Pu-yan, Chen, You-hua, Yang, Yong-cong, Wang, X. Henry
• Format: Journal Article
• Language: English
• Published: Elsevier Ltd 15.12.2016
• Subjects: Debt; Limited liability effects; Renewable energy; Subsidy; Limited liability effects; Debt; Renewable energy; Subsidy
• ISSN: 0959-6526; 1879-1786
• DOI: 10.1016/j.jclepro.2016.08.083

Faced with decreasing exhaustible nonrenewable resources and climate change resulting from the use of fossil energy, it is urgent to accelerate the development of renewable energy. But the development of renewable energy requires abundant financial support both from banks and governments. This article considers bank loans to develop renewable energy and highlights the effects of government subsidies. By using a microeconomic model and taking all stakeholders including the government, banks and shareholders of the firm into consideration, this study finds that government subsidies raise outputs and debt levels of renewable energy firms and improve shareholder value as well. More importantly, financial debts stimulate firms' outputs but decrease the net profit per unit of debt due to the limited liability effects. Finally, subsidy policy plays a critical role in renewable energy development because environmental efficiencies of subsidies decrease with the subsidy degree. Other valuable conclusions would be achieved if principal-agent problem and other corporate governance factors are employed. •Bank loans and government subsidies are considered in renewable energy development.•Limited liability effects stimulate renewable energy investment.•Subsidy stimulates outputs and debt levels for renewable energy firms.•Subsidy improves shareholder value.•The environmental efficiency of subsidy decreases with the subsidy degree.