IDEAS home Printed from https://ideas.repec.org/p/ris/fcnwpa/2010_004.html
   My bibliography  Save this paper

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

Author

Listed:
  • Reinhard Madlener

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

  • Ilja Neustadt

    (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

  • Reinhard Madlener & Ilja Neustadt, 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).
    • Handle: RePEc:ris:fcnwpa:2010_004
    as

    Download full text from publisher

    File URL: http://www.fcn.eonerc.rwth-aachen.de/global/show_document.asp?id=aaaaaaaaaagvvcv
    File Function: Full text
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. 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.
    2. 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.
    3. Nielsen, Lene & Jeppesen, Tim, 2003. "Tradable Green Certificates in selected European countries--overview and assessment," Energy Policy, Elsevier, vol. 31(1), pages 3-14, January.
    4. Philippe Menanteau & Dominique Finon & Marie-Laure Lamy, 2003. "Prices versus quantities :environmental policies for promoting the development of renewable energy," Post-Print halshs-00480457, HAL.
    5. Pizer, William A., 1999. "The optimal choice of climate change policy in the presence of uncertainty," Resource and Energy Economics, Elsevier, vol. 21(3-4), pages 255-287, August.
    6. Weitzman, Martin L, 1978. "Optimal Rewards for Economic Regulation," American Economic Review, American Economic Association, vol. 68(4), pages 683-691, September.
    7. Amundsen, Eirik S. & Mortensen, Jorgen Birk, 2002. "Erratum to "The Danish Green Certificate System: some simple analytical results": [Energy Economics 23 (2001) 489-509]," Energy Economics, Elsevier, vol. 24(5), pages 523-524, September.
    8. Nilsson, Mats & Sundqvist, Thomas, 2007. "Using the market at a cost: How the introduction of green certificates in Sweden led to market inefficiencies," Utilities Policy, Elsevier, vol. 15(1), pages 49-59, March.
    9. Söderholm, Patrik, 2008. "The political economy of international green certificate markets," Energy Policy, Elsevier, vol. 36(6), pages 2051-2062, June.
    10. Martin L. Weitzman, 1974. "Prices vs. Quantities," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 41(4), pages 477-491.
    11. Soderholm, Patrik & Sundqvist, Thomas, 2003. "Pricing environmental externalities in the power sector: ethical limits and implications for social choice," Ecological Economics, Elsevier, vol. 46(3), pages 333-350, October.
    12. Menanteau, Philippe & Finon, Dominique & Lamy, Marie-Laure, 2003. "Prices versus quantities: choosing policies for promoting the development of renewable energy," Energy Policy, Elsevier, vol. 31(8), pages 799-812, June.
    13. Denicolo, Vincenzo, 1999. "Pollution-Reducing Innovations under Taxes or Permits," Oxford Economic Papers, Oxford University Press, vol. 51(1), pages 184-199, January.
    14. Amundsen, Eirik S. & Nese, Gjermund, 2002. "Provision of renewable energy using green certificates: market power and price limits," MPRA Paper 10558, University Library of Munich, Germany.
    15. 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.
    16. Berry, David, 2002. "The market for tradable renewable energy credits," Ecological Economics, Elsevier, vol. 42(3), pages 369-379, September.
    17. Amundsen, Eirik S. & Mortensen, Jorgen Birk, 2001. "The Danish Green Certificate System: some simple analytical results," Energy Economics, Elsevier, vol. 23(5), pages 489-509, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    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. Ronald Bernstein & Reinhard Madlener, 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. Carl Christian Michelsen & Reinhard Madlener, 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. Birk Kraas & Marion Schroedter-Homscheidt & Benedikt Pulvermüller & Reinhard Madlener, 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).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. 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.
    2. Madlener, Reinhard & Neustadt, Ilja, 2018. "Renewable energy price-control policy in the presence of innovation: is government pre-commitment preferable?," MPRA Paper 91546, University Library of Munich, Germany, revised 19 Jan 2019.
    3. Stephan Nagl, 2013. "Prices vs. Quantities: Incentives for Renewable Power Generation - Numerical Analysis for the European Power Market," EWI Working Papers 2013-4, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
    4. Madlener, Reinhard & Stagl, Sigrid, 2005. "Sustainability-guided promotion of renewable electricity generation," Ecological Economics, Elsevier, vol. 53(2), pages 147-167, April.
    5. Pablo del Río, 2007. "The Impact of Market Power on the Functioning of Tradable Green Certificates Schemes," Energy & Environment, , vol. 18(2), pages 207-231, March.
    6. Ciarreta, Aitor & Espinosa, Maria Paz & Pizarro-Irizar, Cristina, 2017. "Optimal regulation of renewable energy: A comparison of Feed-in Tariffs and Tradable Green Certificates in the Spanish electricity system," Energy Economics, Elsevier, vol. 67(C), pages 387-399.
    7. Xiang-Yu Wang & Bao-Jun Tang, 2018. "Review of comparative studies on market mechanisms for carbon emission reduction: a bibliometric analysis," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 94(3), pages 1141-1162, December.
    8. Tang, Bao-Jun & Wang, Xiang-Yu & Wei, Yi-Ming, 2019. "Quantities versus prices for best social welfare in carbon reduction: A literature review," Applied Energy, Elsevier, vol. 233, pages 554-564.
    9. Pineda, Salvador & Bock, Andreas, 2016. "Renewable-based generation expansion under a green certificate market," Renewable Energy, Elsevier, vol. 91(C), pages 53-63.
    10. Mulder, Peter & de Groot, Henri L.F., 2013. "Dutch sectoral energy intensity developments in international perspective, 1987–2005," Energy Policy, Elsevier, vol. 52(C), pages 501-512.
    11. Botor, Benjamin & Böcker, Benjamin & Kallabis, Thomas & Weber, Christoph, 2021. "Information shocks and profitability risks for power plant investments – impacts of policy instruments," Energy Economics, Elsevier, vol. 102(C).
    12. Darmani, Anna & Rickne, Annika & Hidalgo, Antonio & Arvidsson, Niklas, 2016. "When outcomes are the reflection of the analysis criteria: A review of the tradable green certificate assessments," Renewable and Sustainable Energy Reviews, Elsevier, vol. 62(C), pages 372-381.
    13. Roger Fouquet, 2012. "Economics of Energy and Climate Change: Origins, Developments and Growth," Working Papers 2012-08, BC3.
    14. Kažukauskas, Andrius & Jaraite, Jurate, 2011. "The Profitability of Power Generating Firms and Policies Promoting Renewable Energy," CERE Working Papers 2011:14, CERE - the Center for Environmental and Resource Economics.
    15. Lintunen, Jussi & Kangas, Hanna-Liisa, 2010. "The case of co-firing: The market level effects of subsidizing biomass co-combustion," Energy Economics, Elsevier, vol. 32(3), pages 694-701, May.
    16. Paul Koutstaal & X. van Tilburg & Michiel Bijlsma & Gijsbert Zwart, 2009. "Market performance and distributional effects on renewable energy markets," CPB Document 190, CPB Netherlands Bureau for Economic Policy Analysis.
    17. Michaela Unteutsch, 2014. "Who Benefits from Cooperation? - A Numerical Analysis of Redistribution Effects Resulting from Cooperation in European RES-E Support," EWI Working Papers 2014-2, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).
    18. Karakosta, Ourania & Petropoulou, Dimitra, 2022. "The EU electricity market: Renewables targets, Tradable Green Certificates and electricity trade," Energy Economics, Elsevier, vol. 111(C).
    19. Eirik S. Amundsen & Gjermund Nese, 2016. "Market Power in Interactive Environmental and Energy Markets: The Case of Green Certificates," CESifo Working Paper Series 5922, CESifo.
    20. Miguel Pérez de Arce and Enzo Sauma, 2016. "Comparison of Incentive Policies for Renewable Energy in an Oligopolistic Market with Price-Responsive Demand," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).

    More about this item

    Keywords

    Renewable Electricity; Feed-In Tariffs; Regulatory Pre-Commitment; Tradable Green Certificates; Quot;
    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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ris:fcnwpa:2010_004. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Hendrik Schmitz (email available below). General contact details of provider: https://edirc.repec.org/data/fceonde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.