Geoscience Reference
In-Depth Information
They have been an effective policy tool for stimulating
the market for renewable energy. To encourage innova-
tion and the large-scale implementation of WWS tech-
nologies, which will itself lower costs, FITs should be
reduced gradually. Otherwise, technology developers
have little incentive to improve. One way to reduce FITs
gradually is with a
declining clock auction
,inwhich
the right to sell power to the grid goes to the bidders
willing to do it at the lowest price, providing continu-
ing incentive for developers and generators to reduce
costs. A risk of any auction, however, is that the devel-
oper will underbid and be left unable to develop the
proposed project at a profit. Regardless of whether the
declining clock auction is used, reducing and eventu-
ally phasing out the FIT as the cost of producing power
from WWS technologies declines (referred to as
tariff
regression
)isanimportant goal.
Output subsidies
are payments by government to
energy producers per unit of energy produced. For clean
renewable energy producers, the justification of such
subsidies is to correct the market because fossil fuel and
biofuel energy producers are not paying for the pollu-
tion they emit, which has health and climate impacts on
society as a whole (Table 13.8) through higher taxes,
insurance rates, and medical costs. In other words, the
subsidies attempt to address the
tragedy of the com-
mons
(Preface), which arises because the air is not pri-
vately owned, so it has been polluted without polluters
paying the cost of the pollution.
Investment subsidies
are direct or indirect payments
by government to energy producers for research and
development. Historically, such subsidies have been
given mostly to conventional fuel producers through
legislation and clauses in the tax code that allow for
deductions or credits for specified activities. Thus, con-
ventional generators have benefited historically by not
paying the externality costs of their pollution (Table
13.8) and by receiving direct subsidies. Investment sub-
sidies are now available to WWS energy sources in
many countries.
One type of investment subsidy is a
loan guarantee
,
whereby the government provides the guarantee for a
loan to a company for construction of a facility. With-
out such guarantees, many large energy projects could
not obtain approval for a construction loan. Such loan
guarantees, historically provided to the conventional
fuels industry, are beneficial for WWS facilities as well.
On a smaller scale,
municipal financing
for residential
energy efficiency retrofits or solar installations could
help overcome the financial barrier of high upfront cost
to individual homeowners.
Purchase incentives and
rebates
can also help stimulate the market for electric
vehicles.
A potential policy tool that has not been widely used
to date is a
revenue-neutral pollution tax
.Thisisa
tax on polluting energy sources, with the revenue trans-
ferred directly to nonpolluting energy sources. In this
way, no net tax is collected, so the cost to the public is
zero in theory.
Arelated tool is straight
pollution tax
(e.g., a
car-
bon tax
). Such a tax is less popular because it is per-
ceived as a cost to the public; that is, polluting compa-
nies could simply increase their prices to pay the tax.
The revenue-neutral pollution tax avoids this problem
because it allows the cost of clean energy to decrease;
thus, if polluters increase their prices, electricity buyers
can then shift to purchase the cleaner energy.
An important noneconomic policy program is to
reduce demand by
improving the efficiency of end-
use energy
,orsubstituting low-energy activities and
technologies for high-energy ones. Demand reduction
reduces the pressure on energy supply, making it eas-
ier for clean energy supply to match demand. Provid-
ing incentives for consumers to shift the time of their
electricity use (demand-response) (Section 13.8.3) can
improve efficiency of an overall electric power infras-
tructure.
Another noneconomic policy is to
mandate emis-
sion limits
for technologies. This is a
command-and-
control
policy option implemented widely under the
Clean Air Act Amendments and in many countries of
the world to reduce vehicle emissions. By tightening
emission standards, including for carbon dioxide, pol-
icy makers can force the adoption of cleaner vehicles.
Such emission limits can and have similarly been set
for many other sources of pollution.
Related to mandatory emission limits is the policy
mechanism of
cap and trade
.Under this mechanism,
mandatory emission limits lower than current emissions
are set for an entire industry, and pollution permits are
issued corresponding to the total pollution emissions
allowed. Polluters in the industry can then buy and sell
pollution permits, resulting in an increase in the price
of permits if polluters want to continue polluting.
13.11. Summary and Conclusions
Asolution to the problems of global warming, outdoor
and indoor air pollution, and acid deposition requires
alarge-scale conversion of the current world's energy
infrastructure. In this chapter, a scenario for such a con-
version is described. The solution would eliminate these
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