THE SOCIAL EFFICIENCY OF INSTRUMENTS FOR THE PROMOTION OF RENEWABLE ENERGIES IN THE LIBERALISED POWER INDUSTRY

Dominique Finon

Annals of Public and Cooperative Economics, 2006, vol. 77, issue 3, 309-343

Abstract: ABSTRACT**: This paper compares the social efficiency of the two main regulatory instruments used to promote renewable energy sources in electricity generation (RES‐E), taking into consideration their role in promoting the preservation of the climate. They are based on a purchase obligation and act either by price (feed‐in tariffs) or by quantity (RES‐E quotas). In their reference design, the instruments show different performances in several dimensions: market incentives intensity, control of the cost for consumers, safeguards of RES‐E investments, and conformity with the new market regime of the electricity industry. The comparison shows that neither instrument offers an optimal solution in each of these dimensions. In particular, the intrinsic qualities of the quotas instrument that are put forward to mandate its adoption by the EU members are overestimated. A government will thus select an instrument in accordance with the relative importance of its objectives: environmental policy versus cost control by market pressure.

Date: 2006
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