Renewable Energy Promotion: Usual Claims and Empirical Evidence - Green Energy and Efficiency: An Economic Perspective - page 334

2.2.2 The Reply

Technology neutrality is hardly dynamically ef cient. This is so because in a

problem with such a long-term horizon, such as climate change mitigation, we need
to put technologies on the shelf (i.e., promote their development), not only to take
them from the shelf (i.e., promote their diffusion) [ 37 ]. A technology neutral
instrument, such as a CO 2 price, would only allow for the later but not for the
former. In particular, policies need to bridge the gap with respect to the afore-
mentioned valley of the death between discoveries in the lab and the large-scale
deployment of commercial products. It is hard to see how this can be done without
a technology-speci c policy. Technology-neutral policies would only favor cur-

rently mature technologies, but they would not provide a suf cient stimulus for the

development and diffusion of currently more expensive less mature technologies
with a large cost-reduction potential. As argued by Azar and Sanden [ 38 ]

If the
aim of governments is to reduce CO 2 emissions, policies explicitly aiming to
develop carbon ef

“

cient technologies will by de nition be technology-speci c ” .

Therefore, while technology-neutral policies aim at static ef ciency, dynamic

ef c policies. Thus, the

debate about whether these policies should be technology-speci

ciency requires the implementation of technology-speci

c becomes rather
meaningless, and should be replaced by a discussion about how technology-speci c

the policies should be [ 38 ]. The dilemma about applying technology-neutral versus
technology-speci

c policies may suggest a broader trade-off between the static

ef ciency criteria and also between market failure and

government failure in the choice of low-carbon technologies. Further research
should be devoted to the analysis of those trade-offs and appropriate balances
between the two.

ciency and dynamic ef

2.3 Best Instruments Should Be Applied

“ ”

2.3.1 The Usual Claim

A voluminous literature has compared the pros and cons of different instruments to
support RES-E. The focus has mostly been on “ quantity-based schemes ” (TGCs)

versus “ price-based instruments ” (FITs).

￿ FITs are subsidies per kWh generated, combined with a purchase obligation by

the utilities.

￿ Quotas with TGCs (called Renewable Portfolio Standards (RPS) in the US) are

certi cates issued for every MWh of RES-E, allowing generators to obtain

additional revenue to the sale of electricity (i.e., two streams of revenue).
Demand for TGCs originates from an obligation on electricity distributors to
surrender a number of TGCs as a share of their annual consumption (quota).
Otherwise, they would pay a penalty. The TGC price strongly depends on the
interaction of supply and demand and other factors.