Sometimes apparently mutually supportive objectives can clash in practice. The political proponents of policy change must balance economic, industrial, social and environmental interests to define a clear set of policy systems that will actually deliver intended outcomes.
Some common objectives of renewable energy promotion include industry development for employment, securing an export position in emerging markets, security of energy supply (reducing fuel or electricity imports), long-term GHG emissions reductions and increasing rural economic development.
Some common areas of cross-cutting objectives occur when a one-size-suits-all approach is taken. The elegance of simplicity is often attractive, but in renewable energy policy it can lead to an inferior outcome.
A key example occurs when renewable energy development is cross-cut with carbon abatement. In principle, carbon trading entails applying a cap or pollution permit requirement to carbon, increasing the cost to carbon polluters and thereby closing the gap between conventional and renewable generation prices. However, if carbon trading allows for the use of tree planting (carbon sinks) or displaced emissions to be included, very low-cost carbon abatement is possible.
Nevetheless, low-cost abatement measures are limited and even those that are available are not necessarily secure. In the longer term it is generally agreed that renewables are most likely to provide the least-cost abatement for deep cuts in GHG emissions. The policy pitfall in the short term is that we may hobble the current renewable industry by throwing it into a scheme where it is required to compete with low-cost carbon abatement. And in so doing, the opportunity for low-cost abatement in the future is compromised.
Source: Windpower Monthly (2004)
Figure 2.6 Wind energy can be competitive with conventional sources, as shown here for the EU, but as carbon is priced the coal and gas bands are pushed upwards
Box 2.2 Policy failure in the fictional state of Djangostan
Imagine a fictional scenario in which a policy-maker is asked to ensure his country, let's call it Djangostan, will have a clean energy industry with plenty of jobs, reductions in GHG emissions, and cheap, domestically produced energy. This Djangostani official drafts a policy that provides a price for power that renewable energy developers would find attractive. Then a delegation from Canada suggests the policy should not be so technology-specific, why not define it in terms of zero-emission technology? So the Djangostan policy-maker includes nuclear power in the scheme. Next, a gas pipeline builder drops in and argues that gas is the cheapest form of emissions abatement in the generation sector. Then a coal lobbyist comes by and talks about the latest coal technology, its efficiency, and the future of carbon capture and sequestration. And wouldn't it be best to let the market decide? So the policy-maker drafts a technology-neutral carbon trading type policy.
What Djangostan gets as a result is a group of Djangostani farmers who are promising not to clear forested land to anyone who will pay one dollar per tonne of carbon dioxide (CO2). A new coal power station manufactured in the US that was going to be built anyway, but because it is more efficient than the old one, carbon credits are created at almost zero cost. Developers for the gas pipeline and generation facility, which would have been a little better, do not bother coming because the now-subsidized coal makes it uneconomic. And finally the renewable energy companies that were looking to set up in Djangostan pack their bags and go elsewhere. Building a renewable energy plant is a real investment and they cannot compete against the smoke and mirrors of 'avoided' emissions in coal plants and trees that 'might' have been cut down.
No renewable energy is installed. No factories are set up. No extra people are employed. No fuel imports are displaced. All that has happened is what would have happened anyway, except that some money changed hands and some politicians and business people said they were protecting the planet. And of course some farmers are smiling broadly.
What went wrong? First, the objectives were not prioritized. The objectives of carbon emissions reductions and least cost came to dominate policy construction, taking precedence over industry development and indigenous supply.
Second, the time frames were not specified. No industry starts out cheap, so decisions need to be made about the time frames for each of the policy objectives. Long-term economic efficiency and economic development may well have led to different policy choices. Is it more cost effective to be a manufacturer and exporter or an importer of a given technology? What are the co-benefits worth striving for? What cost to the economy spread over what period is acceptable? These are some of the questions that needed to be asked and answered at the outset, not in retrospect.
This is not necessarily a policy failure as regards GHG emissions, but it is with respect to renewables. It shows the need to adequately identify, prioritize and separate policy outcomes.
Even for GHG emissions reductions the catch-22 discussed in the introduction emerges again. In order to achieve low-cost emission abatement, one must first put in place industry development.
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