Incentivizing Renewable Energy Deployment: Renewable Portfolio Standards and Feed-In Tariffs

Abstract:     
Two legal instruments for promoting renewable energy production - renewable portfolio standards (“RPSs”) and feed-in tariffs (“FITs”) - are in use across the globe. Many studies pit these policies against each other, treating them as either-or options. Some analyses suggest that FITs have been more effective at increasing use of renewables-powered electricity. At the same time, nations using FITs have continued to modify their laws, and there is some empirical evidence that RPSs are effective at incentivizing renewables deployment. This article explains how FITs and RPSs work, surveys the empirical literature surrounding their implementation, and conceptualizes their mechanics. It suggests that the policy design of both FITs and RPSs are critical to their efficacy. Specifically, each type of law has several critical design parameters. For FITs, these are (1) the tariff price level, (2) price structure, and (3) payment duration. For RPSs, these are (1) the renewables target, (2) compliance speed, (3) jurisdictional reach, and (4) resource eligibility. The article concludes that, if designed properly, RPSs and FITs might be most effective if used in tandem as complementary instruments, rather than seen as mutually exclusive alternatives.

Number of Pages in PDF File: 56

Keywords: Renewable Energy, Feed-In Tariff, Renewable Portfolio Standard, Electricity, Technology-forcing Regulation, Sustainability, Climate Change

JEL Classification: K10, K20, K23, K29, K32, Q20, Q28, Q38, Q40, Q41, Q42, Q48, L94, O31, O32

Accepted Paper Series