Renewable Energy Policy in the Presence of Innovation: Does Government Pre-Commitment Matter?

Reinhard Madlener and Ilja Neustadt

No 4/2010, FCN Working Papers from E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN)

Abstract: In a perfectly competitive market with a possibility of technological innovation we contrast guaranteed feed-in tariffs for electricity from renewables and tradable green certificates from a dynamic efficiency and social welfare point of view. Specifically, we model decisions about the technological innovation with convex costs within the framework of a game-theoretic model, and discuss implications for optimal policy design under different assumptions regarding regulatory pre-commitment. We find that for the case of technological innovation with convex costs subsidy policies are preferable over quota-based policies. Further, in terms of dynamic efficiency, no pre-commitment policies are shown to be at least as good as the pre-commitment ones. Thus, a government with a preference for innovation being performed if the achievable cost reduction is high should be in favor of the no pre-commitment regime.

Keywords: Renewable Electricity; Feed-In Tariffs; Regulatory Pre-Commitment; Tradable Green Certificates; Quota Target; Innovation; Energy Policy (search for similar items in EconPapers)
JEL-codes: Q42 Q48 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2010-04, Revised 2010-06
New Economics Papers: this item is included in nep-ene, nep-env, nep-ino, nep-mic and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Working Paper: Renewable energy policy in the presence of innovation: does government pre-commitment matter? (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:ris:fcnwpa:2010_004

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