Renewable Energy Policy in the Presence of Innovation: Does Government Pre-Commitment Matter?
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.
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| Length: | 40 pages |
| Date of creation: | Apr 2010 |
| Date of revision: | Jun 2010 |
| Handle: | RePEc:ris:fcnwpa:2010_004 |
| Contact details of provider: | Web page: http://www.eonerc.rwth-aachen.de/fcn Email: More information through EDIRC
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