Reconciling Renewable Portfolio Standards and Feed-In Tariffs

Abstract

In the United States, renewable portfolio standards (“RPSs”) dominate as the renewable energy policy tool of choice. Feed-in tariffs (“FITs”), common in Europe and other parts of the world, thus have come to be seen by many policymakers as a binary alternative -- to promote renewable energy, they assume they must choose either RPSs or FITs, not both. This article challenges that presumption. It outlines how RPSs and FITs can be used in tandem, laying out the ways using these policy tools together may be synergistic. RPSs and FITs have different strengths. RPSs offer greater policy clarity, whereas there is some evidence that FITs are more effective and efficient. RPSs and FITs also target different segments of industry: RPSs utilities, FITs energy producers. Thus, using RPSs and FITs together may produce a number of benefits: (1) a stronger signal of governmental support for renewable energy, (2) a broader scope of applicability, (3) greater policy clarity, (4) better policy planning, (5) greater effectiveness, (6) simpler compliance, and, potentially, (7) lower implementation costs.

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

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