Renewable Energy Promotion: Usual Claims and Empirical Evidence - Green Energy and Efficiency: An Economic Perspective - page 337

Table 2 Illustrating the equimarginality principle
MWh Marginal costs ( € /MWh)

Technology A Technology B Technology C

1

5 3 27

2

7 4 30

3

10 6 34

4

14 9 39

5

19 13 46

6

25 19 55

7

32 24 66

8

39 31 79

9

49 39 94

10

59 48 111

Source Own elaboration

2.4.2 The Reply

Apart from the fact that it is rather simplistic to compare instruments between each
other in an abstract setting, without considering their speci c design elements (see

Sect. 2.3 above), it is arguable whether TGCs are “ more market-based ” than FITs.

From an environmental economics point of view, this is not correct.
A classical distinction in environmental economics regarding policy instruments is
that between command and control (CAC) and market based instruments (MBI) [ 46 ,
47 ]. The later can be further classi

ed in quantity-based and price-based instruments.
Cap-and-trade schemes and TGCs are examples of the former, whereas taxes and FITs
are examples of the later. In environmental economics, quantity-based instruments are
not regarded as inherently superior. Thus, apart from the fact that TGC schemes create
a market in which TGCs can be traded, there is no reason to claim that

“ TGCs are more

market-based and, thus, superior, at least not under an environmental economics

perspective. More importantly, while it is true that TGCs are in theory more likely to
comply with the equimarginality principle, this does not ensure that policy costs are
minimized under this instrument, or even that they are lower than under FITs. Indeed,
empirical research has shown that the opposite is true, i.e., that the policy costs of FITs
are generally lower than those of TGCs [ 3 , 42 , 48

”

50 ]. In theory, remuneration levels
under FITs can be adjusted to the costs of the technologies (technology-speci

-

c
support). In contrast, under a technology-neutral instrument such as TGCs, support is
uniform for all technologies (given by the TGC price). This TGC price is set by the
marginal costs of the last technology needed to comply with the target. This results in
high remuneration levels for the most mature, cheapest renewable energy technolo-
gies, i.e., for those technologies with costs below the TGC price. However, this
conclusion neglects two major points. On the one hand, it might be dif

cult for the
government in the real world to set the support levels close to the generation costs of