Public finance for renewable energy use and for the renewable energy sector's development: externalities, sustainability and other issues

This article outlines the case for increasing our dependence on solar and wind power to generate electricity. It outlines the economic reasons why governments should provide financial incentives for the increased use and production of electricity from solar and wind power and identifies the policy instruments able to provide these incentives and encourage the development of this green electricity sector. Although wind and solar resources are usually classified as renewable resources, it is argued that classifying them as flow resources is more appropriate. Basic sustainability concerns about the use of alternative energy resources differ. The nature of these different concerns is clarified. Pigovian-type economic analysis is employed to provide an illustration of the superior social economic benefits of using solar and wind power to generate electricity rather than fossil fuels. However, it is also pointed out that there are economic and political constraints on increasing our reliance on solar and wind power to generate electricity. These include the unsatisfactory flow of these resources in some parts of the world, and constraints on economically and sustainably storing the electricity generated by using these resources. However, technological progress is likely to improve the prospects for storing electricity. Given that the demand for electricity can be expected to increase due to technological change and economic growth, it is more important than ever to pay attention to methods of electricity production (such as those utilizing solar and wind power) which are more environmentally friendly and which have superior sustainability qualities compared to the use of fossil fuels. In many parts of the world, greater reliance on solar and wind power will have these beneficial effects and positive social economic benefits.