Combining Policies for Renewable Energy: Is the Whole Less than the Sum of Its Parts?

Combining Policies for Renewable Energy: Is the Whole Less than the Sum of Its Parts? Carolyn Fischer September 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 Distinctions from 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 Policies How 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
For more information:
http://www.rff.org

Combining Policies for Renewable Energy: Is the Whole Less than the Sum of Its Parts?

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Combining Policies for Renewable Energy: Is the Whole Less than the Sum of Its Parts? — Presentation Transcript