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The Main Support Mechanisms to Finance Renewable Energy Development

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  • Abolhosseini, Shahrouz

    () (College of Engineering, TEMEP, Seoul National University, Seoul, Korea)

  • Heshmati, Almas

    () (Centre of Excellence for Science and Innovation Studies (CESIS), and Jönköping University (JIBS))

Abstract

Considering that the major part of greenhouse gases is carbon dioxide, there is a global concern aimed at reducing carbon emissions. Additionally, major consumer countries are looking for alternative sources of energy to avoid the impact of higher fossil fuel prices and political instability in the major energy supplying countries. In this regard, different policies could be applied to reduce carbon emissions, such as enhancing renewable energy deployment and encouraging technological innovation and creation of green jobs. There are three main support mechanisms employed by governments to finance renewable energy development programs: feed-in-tariffs, tax incentives, and tradable green certificates. Considering that many of the promising technologies to deploy renewable energy require investment in small-scale energy production systems, these mechanisms could be used to enhance renewable energy development at the desired scale. Employing a carbon emission tax or emission trading mechanism could be considered ideal policies to mitigate emissions at the lowest cost. The comparison of feed-in-tariffs and renewable portfolio standard policies showed that the former is good when a policy to develop renewable energy sources with a low level of risk for investors is considered. However, the latter is an appropriate policy when a market view policy is applied by the government.

Suggested Citation

  • Abolhosseini, Shahrouz & Heshmati, Almas, 2014. "The Main Support Mechanisms to Finance Renewable Energy Development," Working Paper Series in Economics and Institutions of Innovation 373, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
  • Handle: RePEc:hhs:cesisp:0373
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    Keywords

    Renewable energy; financing renewable energy; feed-in-tariffs; tax incentives; tradable green certificates; carbon emission tax; green jobs;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L71 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Hydrocarbon Fuels
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • Q27 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Issues in International Trade
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources

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