Combining Policies for Renewable Energy

Mar 30, 2010

Combining Policies For Renewable Energy
RFF Feature
March 30, 2010

Combining Policies for Renewable Energy

Promoting renewable energy is a popular platform for leaders seeking to increase energy security, reduce greenhouse gas emissions, create green jobs, or all of the above. With a growing patchwork of plans to achieve these goals, however, questions are arising about how these policies interact.

Incentive mechanisms for electricity from renewable energy sources (RES-E) range from emissions pricing to feed-in tariffs to renewable portfolio standards. In “Combining Policies for Renewable Energy: Is the Whole Less than the Sum of Its Parts?”, RFF Senior Fellow Carolyn Fischer and Research Assistant Louis Preonas review the recent literature.

They find that once emissions from electricity generation are sufficiently priced or capped, additional renewable energy policies lead to little further emissions reductions or environmental benefit; in fact, they lower costs for the dirtier producers. Consequently, further RES-E policies can only be justified if they address other market failures, such as spillovers from technological innovation and learning as well as market and regulatory barriers.

Fischer and Preonas also look at other RES-E policy combinations. For example, because portfolio standards link renewable to nonrenewable generation, additional subsidies to promote renewable energy tend to allow dirtier sources to expand their emissions.

They note that the cost associated with a single policy is more apparent, and possibly less palatable, to consumers than with multiple instruments. This makes simultaneous policies more likely and increases the importance of understanding policy interactions.