Global Issues
Index >> Policies to Promote Renewable Energy
Policies to Promote Renewable Energy
Welcome to GENI's Policy site! Progressive
policy-making is the most influential factor on our
renewable energy future. We have gathered what we
believe to be the most effective government policies
around the world to promote renewable energy technologies.
Studies show that the world is blessed with renewable
resources; there is enough potential capacity on each
continent to meet the world's entire power generation
requirements without the use of fossil fuels. In the
past decade, technology costs have dropped dramatically
- yet the key driver in getting renewables onto the
grid has been forward-thinking policy-making at the
local, state and federal levels.
Please read the overview
on this page and also explore the various policy options
listed on the left.
- Why is it important to
expand the market share of renewable resources
for electricity and transportation fuels?
- How will changing government
policy affect the future usage/adoption of renewables?
Why can't we depend on free market?
- What are the best policy
options for promoting consumption/production
of renewables?
- How does a policymaker decide
which policy instrument is best for his/her
country?
Q: Why are we interested in accelerating the use
of renewable resources for electricity and transportation
fuels?
GENI focuses on extending access to electricity (through
the grid) while tapping renewable sources to create
the electricity. Energy, specifically electrical energy,
provides the foundation of our modern society. It supports
our transportation system, communications, water and
waste treatment, agriculture, health care, lights and
computers. 2 billion people on our planet still have
no access to electricity, and live in daily struggle
just to survive. Access to electricity and fuel essentially
determines our standard of living, providing us with
education, nutrition and economic opportunities.
We advocate sustainable development, meaning that while
we must increase energy access, it should not compromise
the ability of future generations to live well. Conventional
sources of energy pose significant threats to our current
and future environmental quality, health and social
well being. Renewable energy sources, however, mitigate
the negative effects of fossil fuel use. Solar,
wind and geothermal power, for example, do not contribute
to global climate change, will not run-out and are available
to everyone around the globe.
"The
World Energy Outlook 2000
shows that
there is the potential to
achieve
a greater share
for
renewables,
if more vigorous
policies
are implemented".
INTERNATIONAL
ENERGY AGENCY
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Renewable power resources are abundant around the world.
Then, why haven't we already switched from fossil fuels
to renewables? We are deeply dependent on the use
of fossil fuels, and consequently, significant barriers
exist to mainstreaming renewable energy use. According
to the United Nations Development Program (UNDP),
- Fossil fuels (coal, oil and gas) account for
80% of global energy consumption
- Total energy sales worldwide amount to about
$1 trillion per year (3% global GDP)
- Fossil fuel subsidies are about $150 billion
per year
- 'New renewables' sales are about $20 billion
per year
While solar and wind power are growing at 20 and 30
percent respectively and their costs are decreasing
exponentially, their market share is minuscule compared
to the scale of oil and gas production.
Graph 1
Source: Department of Energy
Because "economies of scale" still favor fossil
fuels, we need policymakers to intervene in energy markets
to accelerate the widespread use of renewables. The
International Energy Agency predicts that the quantity
of energy we consume from renewables will increase by
50% in the next 20 years, but renewables will remain
at about 8% of global energy consumption. However, in
a 2002 IEA report, they write, "The World Energy
Outlook 2000 shows there is potential to achieve a greater
share for renewables, if more vigorous policies are
implemented". Furthermore, they say that the share
of renewables could more than quadruple compared to
their predictions for 2020 if market barriers were removed.
Reference:
Renewable
Energy into the Mainstream, International Energy
Agency
Q: How will changing government policy affect the
future usage/adoption of renewables? Can't we depend
on the power of the free market?
Traditionally, governments have intervened in the energy
sector because they considered access to energy to be
a public good. When a good or service innately benefits
society, but the benefit is not captured in the market
price, this product tends to be underproduced. Energy
is a public good because it empowers communities and
benefits one's standard of living. Consequently, governments
have justified providing subsidies and widening access
through public ownership and regulation (UNDP 43).
Now the world faces risks from global climate change
and local ecosystem destruction due to the carbon dioxide
emissions and other pollutants from fossil fuel combustion.
These costs to society (externalities) are not included
in the price for fossil fuel energy production.
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Graph
2
With the same demand curve, the market will
set the supply at the market price. This results
in inefficiency- too much output at a low price.
Society benefits when policy urges the market
to include all costs into the market price.
If all prices reflected their true costs, all
fuels would be on a more level playing field.
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For example- The EU cost of electricity generation
without these external costs averages about
4 cents/kWh. If these external costs were in
fact included, the EU price of electricity from
coal would double and that from gas would increase
30%.
Nuclear
Issues Briefing Paper # 71
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The market needs help to incorporate negative externality
costs into market prices. If we were to wait for
the market to make renewable energy cost-competitive,
it would be too late to reverse the effects of climate
change, ecosystem destruction and pollution. Governments
have the opportunity to accelerate the use of renewable
resources through effective policy measures.
Currently, one of the biggest obstacles to mainstreaming
renewables is that they are not cost competitive. Governments
have the option to create policy that affects the price
of both fossil and renewable fuels through subsidy reform
and taxes. Also, funding renewable energy production
or accelerating consumption through electricity feed-in
laws, technology procurement, concessions, targets and
tradable certificate programs will also lead to more
equalized prices.
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Governments must be involved with renewable
energy dissemination because markets alone are
ineffective in mainstreaming renewable energy.
The reasons include:
-
Energy prices do not account for significant
negative environmental and social impacts,
both globally and locally (UNDP)
-
Competition is diminished with natural
monopolies within the energy system (UNDP)
and with widespread government subsidies
that distort energy prices
-
Renewable energy development will not
happen quickly enough to mitigate the negative
effects of climate change
- Markets fail to value public benefits
of renewables, causing little incentive for
companies to invest in R&D
Resources:
Union
of Concerned Scientists
UNDP
(See page 142 of document for details)
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Q: What are the best policy options for promoting
consumption/production of renewables?
Table 1
Q: How does a policymaker decide which policy instrument
is best for his/her country?
Clearly, each country faces different barriers to mainstreaming
renewable energy. Developing nations' priority is increasing
energy access to all people, while encouraging economic
development and sustainable lifestyles. Economies in
transition must encourage competition in their energy
markets in order to draw investment. Industrialized
countries have established oil dependencies maintained
by subsidies, corporate power and the public's reluctance
to change. However, encouraging competitive energy markets
in all nations around the world will accelerate the
use of renewables.
Developing Nations:
The unstable markets in developing nations lack
competition because investors do not want to put money
into weak economies. These nations can focus their policy
on attracting domestic and foreign investment and possibly
restructuring publicly owned energy entities (6)*. However,
privatizing the energy industry is tricky and may have
unwanted side-effects such as social unrest and political
instability.
For developing and transitional countries, it is increasingly
evident that reducing fossil fuel subsidies will improve
their energy problems. "Reducing or eliminating subsidies
provides internal revenues for investment, improves
the prospects of attracting direct foreign investment,
and improves the financial capacity of governments to
pursue other development objectives" states the UNDP
(57). Subsidies that underprice electricity have cost
developing nations $130 billion a year for the past
decade.
The UNDP suggests a better solution for developing nations
would be to reform subsidy programs by focusing them
on financial, social and environmental sustainability.
In addition, fundamental legal, institutional and social
reforms will help attract energy sector investment.
Also, local renewable projects, such as Barcelona's
Solar Law have been successful because they combine
government action with enough individual control to
stimulate market competition (117).
Industrialized Nations:
In industrialized nations, which already have sufficient
investors and well-functioning markets, policies can
concentrate on leveling the playing field for all competitors
(7). Both removing subsidies and internalizing the social
costs of burning fossil fuels will help eliminate market
price distortions. Societies that want to account for
external costs can create emission taxes, fiscal incentives
(investment grants, tax credits, guaranteed prices for
renewables), use ethical persuasion by educating the
public on social costs of using energy sources and can
implement certificate trading programs.
Other ways for industrialized countries to accelerate
the use of renewables include setting targets, implementing
renewable portfolio standards and certificate and emissions
trading programs. All of these options allow flexibility
for companies to chose the manner in which they increase
the percentage of total renewables they produce and
consume. Setting technology standards, such as vehicle
emissions standards, ensure that companies develop cleaner
technology, but also provide flexibility for their R&D.
Research and development of new energy technologies
is important for all countries. In industrialized countries,
current pricing systems provide few incentives for private
investment; private companies also tend to invest in
short term R&D, so public money should be spent on long-term
development and demonstration. Developing nations must
dedicate public funds to renewable R&D because technologies
most adaptable to their communities (e.g., decentralized
rural electrification) tend to be under-funded in industrialized
nations. To complement the R&D, capacity building
must be implemented to ensure the energy technology
will be used effectively and maintained properly.
"Few energy technologies have reached maturity without
substantial public sector investment"
UNEP/IEA
Workshops, Reforming Energy Subsidies
References:
*All page numbers referenced refer to:
Johansson, Thomas and Jose Goldemberg. 2002. Energy
for Sustainable Development, A Policy Agenda
New York: UNDP
"Renewable
Energy...Into the Mainstream" International
Energy Agency Renewable Energy Working Party
Research and web design by Sara Kamins, GENI Senior Research Associate
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