Can Technology-Specific Deployment Policies Be Cost-Effective? The Case of Renewable Energy Support Schemes

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract: While there is relatively limited disagreement on the general need for supporting the deployment of renewable energy sources for electricity generation (RES-E), there are diverging views on whether the granted support levels should be technology-neutral or technology-specific. In this paper we question the frequently stressed argument that technology-neutral schemes will promote RES-E deployment cost-effectively. A simple partial equilibrium model of the electricity sector with one representative investor is developed to illustrate how the cost-effective support levels to different RES-E technologies will be influenced when selected market failures are introduced. We address market failures associated with technological development, long-term risk taking, path dependencies as well as various external costs, all of which drive a wedge between the private and the social costs of RES-E deployment. Based on these analytical findings and a review of empirical literature, we conclude that the relevance of these market failures is typically heterogeneous across different RES-E technologies. The paper ends by discussing a number of possible caveats to implementing cost-effective technology-specific support schemes in practice, including the role of various information and political economy constraints. While these considerations involve important challenges, neither of them suggests an unambiguous plea for technology-neutral RES support policies either. Terms of use: Documents in

Environmental Policy and Innovation: A Decade of Research

“…While not a main focus of their paper asking whether policy shifts innovation from fossil fuels to renewable energy, Noailly and Smeets (2015) note that the importance of knowledge stocks in their work could be interpreted as evidence of path dependency. Similarly, while Popp et al (2013) do not explicitly mention path dependency in their analysis of energy patents, Lehmann and Söderholm (2018) interpret the result that successful clean energy innovation depends on a sequence of incremental inventions that build upon one another as evidence of path dependency. As these examples illustrate, studying path dependency for green innovation requires detailed data, so as to distinguish between green and non-green innovation histories.…”

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“…A particularly important design issue is whether the policy is technology-specific or technology-neutral, i.e., whether or not it specifies which technologies (or applications) should be supported. The previous research has argued that technology-neutral deployment policies can lead to an early lock-out of promising technologies (Azar and Sandén 2011;Schmidt et al 2016;Lehmann and Söderholm 2018) (see also Sect. 2.1).…”

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