Post on 11-Jul-2015
Combining Policies for Renewable Energy: Is the Whole Less than the Sum of Its Parts?
Carolyn FischerSeptember 2010 Carbon TradeEx
About RFF
• Independent, nonpartisan, nonprofit research institute in Washington, DC
• Founded in 1952• Our mission:
To improve environmental and natural resource policymaking worldwide through objective social science research of the highest caliber.
Motivation for Thinking About Overlapping Renewable Policies
• Policymakers at all levels of government and around the world have been enthusiastically supporting renewable energy– Energy security – Environmental preservation – Innovation– Green jobs – Infant industries and industrial policy
• But do they recognize how policies interact?
Overlapping Policies for RES-E:Everything but the kitchen sink?
Useful Distinctionsfrom an Economic Perspective
• Fixed-price measures– Carbon – Fossil fuel taxes– Renewable subsidies
• Endogenous-price measures– Cap-and-trade– Portfolio standards– Performance standards – Credit value adjusts to other market influences
Combining Renewable Policies with a Cap-and-Trade System
• With a binding cap, zero incremental emissions reductions are realized from supplementary policies.
• RES-E subsidies cause allowance prices to fall– Tends to benefit dirtier emitters!
• i.e., coal-fired save more than natural gas-fired– Less fossil energy generation overall
• Displaced by RES-E and lower prices– None of the overlapping policies can simultaneously
disadvantage both kinds of fossil generation
Combining Policies with Tradable Standards
• A binding renewable portfolio standard links the fates of fossil and non-fossil energy
• Supplementary policies that subsidize renewables make credits cheaper– Benefits fossil energy suppliers– Expands overall consumption
• and emissions! (unless there’s also a cap)
• Additional charges on fossil energy reduce demand for renewable credits
Rationales for Overlapping PoliciesHow many tools do we need?
• Economic principle: Need as many tools as problems– If GHGs only problem, an emissions price is the only tool
needed; anything else raises costs– If RES-E share is only goal, then RPS by definition should be
efficient
• Other market failures: – R&D, learning-by-doing spillovers– Network effects– Barriers and information problems– Credit access constraints– Market power– Energy security…
Renewable Energy Policies as Innovation Policies
• Different sources have different needs– Different innovation stages,
net emissions characteristics, capital cost structures, etc.
• Simple RPSs and production subsidies do not distinguish among sources– Benefit currently commercial options; – Less effective at promoting next-generation
technology– Empirical studies find FiTs more cost-effective (OECD 2010)– Could have differentiated mandates
• Need to balance RD&D push with market pull policies
Concluding Thoughts
• Overlapping policies require overlapping problems to justify them
• Policies should be evaluated in whole context• Fixed-price policies are more transparent: Additive
• Must recognize tradeoffs between not picking winners and appropriately targeting innovation needs– To what extent do market failures vary by technologies?
• Carbon price still the single most effective policy for GHG reduction, even with spillovers
Thanks!
Funders:– Clipore Program of the Mistra Foundation– U.S. EPA Science To Achieve Results
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