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Renewable Energy Policy in the Presence of Innovation: Does Government Pre-Commitment Matter?

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  • Madlener, Reinhard

    () (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN))

  • Neustadt, Ilja

    () (Socioeconomic Institute (SOI), Faculty of Economics, University of Zurich)

Abstract

In a perfectly competitive market with a possibility of technological innovation we contrast guaranteed feed-in tariffs for electricity from renewables and tradable green certificates from a dynamic efficiency and social welfare point of view. Specifically, we model decisions about the technological innovation with convex costs within the framework of a game-theoretic model, and discuss implications for optimal policy design under different assumptions regarding regulatory pre-commitment. We find that for the case of technological innovation with convex costs subsidy policies are preferable over quota-based policies. Further, in terms of dynamic efficiency, no pre-commitment policies are shown to be at least as good as the pre-commitment ones. Thus, a government with a preference for innovation being performed if the achievable cost reduction is high should be in favor of the no pre-commitment regime.

Suggested Citation

  • Madlener, Reinhard & Neustadt, Ilja, 2010. "Renewable Energy Policy in the Presence of Innovation: Does Government Pre-Commitment Matter?," FCN Working Papers 4/2010, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN), revised Jun 2010.
  • Handle: RePEc:ris:fcnwpa:2010_004
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    References listed on IDEAS

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    1. Weiyu Gao & Reinhard Madlener & Peter Zweifel, 2005. "Promoting renewable electricity generation in imperfect markets: price vs. quantity control," CEPE Working paper series 05-45, CEPE Center for Energy Policy and Economics, ETH Zurich.
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    8. Reinhard Madlener & Weiyu Gao & Ilja Neustadt & Peter Zweifel, 2008. "Promoting renewable electricity generation in imperfect markets: price vs. quantity policies," SOI - Working Papers 0809, Socioeconomic Institute - University of Zurich.
    9. Amundsen, E.S. & Mortensen, J.B., 2001. "The Danish Green Certificate System: Some Simple Analytical Results," Norway; Department of Economics, University of Bergen 226, Department of Economics, University of Bergen.
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    Cited by:

    1. Madlener, Reinhard & Neustadt, Ilja & Zweifel, Peter, 2008. "Promoting Renewable Electricity Generation in Imperfect Markets: Price vs. Quantity Policies," FCN Working Papers 1/2008, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN), revised Nov 2011.
    2. Bernstein, Ronald & Madlener, Reinhard, 2011. "Responsiveness of Residential Electricity Demand in OECD Countries: A Panel Cointegation and Causality Analysis," FCN Working Papers 8/2011, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN).
    3. Michelsen, Carl Christian & Madlener, Reinhard, 2011. "Homeowners' Preferences for Adopting Residential Heating Systems: A Discrete Choice Analysis for Germany," FCN Working Papers 9/2011, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN).
    4. Michele Sennhauser, 2009. "Why the Linear Utility Function is a Risky Choice in Discrete-Choice Experiments," SOI - Working Papers 1014, Socioeconomic Institute - University of Zurich.
    5. Pandey, Rita & Mehra, Meeta Keswani, 2015. "Role of Fiscal Instruments in Promoting Low-carbon Technology Innovation," Working Papers 15/147, National Institute of Public Finance and Policy.
    6. Kraas, Birk & Schroedter-Homscheidt, Marion & Pulvermüller, Benedikt & Madlener, Reinhard, 2011. "Economic Assessment of a Concentrating Solar Power Forecasting System for Participation in the Spanish Electricity Market," FCN Working Papers 12/2011, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN).

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    More about this item

    Keywords

    Renewable Electricity; Feed-In Tariffs; Regulatory Pre-Commitment; Tradable Green Certificates; Quota Target; Innovation; Energy Policy;
    All these keywords.

    JEL classification:

    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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