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

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  • Paul Lehmann

    () (Helmholtz Centre for Environmental Research – UFZ)

  • Patrik Söderholm

    () (Luleå University of Technology)

Abstract

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 review paper we question the frequently stressed argument that technology-neutral schemes will promote RES-E deployment cost-effectively. We use a simple partial equilibrium model of the electricity sector with one representative investor as a vehicle to synthesize the existing literature, and review potential rationales for technology-specific RES-E support. The analysis addresses 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 analytical insight 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 also discusses a number of possible caveats to implementing cost-effective technology-specific support schemes in practice, including the role of various informational and politico-economic constraints. While these considerations involve important challenges, neither of them suggests an unambiguous plea for technology-neutral RES-E support policies either. We close by highlighting principles for careful RES-E policy design, and by outlining four important avenues for future research.

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  • Paul Lehmann & Patrik Söderholm, 2018. "Can Technology-Specific Deployment Policies Be Cost-Effective? The Case of Renewable Energy Support Schemes," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 71(2), pages 475-505, October.
  • Handle: RePEc:kap:enreec:v:71:y:2018:i:2:d:10.1007_s10640-017-0169-9
    DOI: 10.1007/s10640-017-0169-9
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    Cited by:

    1. Germeshausen, Robert, 2016. "Effects of Attribute-Based Regulation on Technology Adoption - The Case of Feed-In Tariffs for Solar Photovoltaic," Annual Conference 2016 (Augsburg): Demographic Change 145712, Verein für Socialpolitik / German Economic Association.
    2. repec:eee:tefoso:v:138:y:2019:i:c:p:309-323 is not listed on IDEAS

    More about this item

    Keywords

    Technology development; Renewable energy sources; Support schemes; Cost-effectiveness;

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources

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