The Effect of Renewable Energy Policies on Renewable Energy Production

By Song, Yoon Won | Atlantic Economic Journal, June 2011 | Go to article overview

The Effect of Renewable Energy Policies on Renewable Energy Production


Song, Yoon Won, Atlantic Economic Journal


The main purpose of renewable energy policies is to increase the production of renewable energy, but this has little empirical support. This relationship is examined by assessing the changes in renewable energy production in different countries when different policies have been in place. Previous studies on renewable energy policies mainly focused on policy effects in promoting technological innovations. They suggest that public policies have a significant impact in promoting renewable energy technologies. However, I find that many of these innovations have not yet been translated into actual production of renewable energy.

Panel data of 26 OECD countries are used from 1990 to 2004. Among others, six categories of policies are focused on: feed-in tariffs, tax incentives, incentives and subsidies, tradable permits, regulatory, and public investment. The policy effects on two different levels are examined. First, the effect of general renewable policies on the overall share of renewable energy in total energy production is studied. Next, the effect of policies within nine subcategories of renewable energy (hydro, geothermal, solar photovoltaic, solar thermal, wind, solid biomass, liquid biofuels, and biogas) are examined. For example, what were the effects of hydro energy policies on the production of hydro energy?

The study finds that policies that use quantity requirements have been more effective than price-based policies. This could be because energy suppliers may supply more renewable energy if they are going to be fined for not meeting the renewables quota than if they are given financial subsidies to provide more renewable energies. Specifically, the study finds that standards and quotas have a positive effect in increasing the production of renewable energy. Standards and quotas are policies that oblige energy suppliers to meet a certain percentage of their supply to come from the renewables. So, this type of policy gives much more freedom to the suppliers in choosing which type of renewables to meet the target.

This finding parallels many of the previous studies. Previous research has shown that strict environmental policies spur more innovation. This research finds that strict policies have long lasting positive effect that increases not only innovation, but actual production as well. Previous research also found that quantity-based regulatory policies were cost effective in reducing carbon emissions. …

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