Environmental Engineering Reference
In-Depth Information
The microeconomics of renewable energy policy
Basic microeconomic theory can provide a useful framework for
describing the incentives of the various players involved in renewable
energy development. Simple economics can also bring the overarching
objectives of renewable energy policies into focus in ways that are not
possible through any other analytical tool. Because of economic theory's
unique capacity to elucidatethe complicated trade-offs at issue, anyone
tasked with structuring laws to govern renewable energy should have a
solid grounding in it.
Viewed through an economic lens, the optimal set of policies to govern
renewable energy development is one that ensures that society extracts
as much value as possible out of its scarce supply of resources. A given
renewable energy project best promotes the social welfare—the overall
well-being of all of society—only when it constitutes the highest valued
use of the land and airspace involved. More broadly, social utility can
be maximized only when humankind develops renewable energy projects
solely on land and in airspace for which there is no other alternative use
that is worth more to society.
Unfortunately, discerning whether a renewable energy project is the
highest valued use of land and airspace at a given location is anything but
easy. Just as no two parcels of land are identical, no two parcels are equally
suitable for renewable energy. Although wind and sunlight can be harvested
to some extent almost anywhere on earth, certain regions and places
naturally have far more productive wind or solar resources than others. As
potential energy productivity of wind and solar resources varies dramati-
cally across the planet. Those variations can significantly impact whether
renewable energy development is optimal in a given location.
In addition to variations in the quality of the wind or solar resources,
countless other site-specific factors can affect the desirability of development
at a given site. From a commercial wind energy developer's perspective,
the availability of road access, transmission capacity, and “off-takers”
interested in purchasing a proposed project's power at a favorable rate
can greatly influence whether a site is well suited for development. In the
context of rooftop solar development, an existing building's orientation
toward the sun and the slope and shape of its roof can impact whether
installing a solar PV system on the building makes good economic sense.
Importantly, even many locations with exceptional wind or solar
resources and favorable site-specific factors like those just described are
nonetheless poor venues for renewable energy development. Specifically,
projects in some of these locations may impose costs on neighbors and
other stakeholders that are so great that they exceed the project's benefits.
These “external” costs—costs not borne by the primary participants in the
development process—are largely the focus of this topic.
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