Levelling the Playing Field: On the Missing Role of Network Externality in Designing Renewable Energy Technology Deployment Policies

31 Pages Posted: 28 Feb 2016

See all articles by Wei Jin

Wei Jin

School of Economics, University of New South Wales

ZhongXiang Zhang

Tianjin University - Ma Yinchu School of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: August 1, 2015

Abstract

In creating a level playing field that facilitates the deployment of renewable energy technology (RET), the traditional energy policy regime based on eliminating RET’s cost gaps versus fossil energy technology (FET) may be not sufficient. Building on an economic model of energy technology adoption that features network externality, this paper takes an explicit account of the potential importance of network externality in the design of RET adoption policies. We argue that as incumbent FET has established pervasive deployment and installed base advantages within the existing energy production, distribution and service network, it would create a network externality mechanism that makes it difficult to dislodge the dominant FET-based technological regime, leading to an inertia against the adoption of newly emerging RET even if energy policy regulations have been put in place to eliminate RET’s cost disadvantage. We hence propose that a reformulation of RET policy paradigm should consider extending the traditional scheme centering on eliminating cost gap to a new one that corrects for both cost and network externality gaps.

Keywords: Renewable energy deployment; energy technology adoption; network externality; climate technology policies

JEL Classification: Q41, Q42, Q48, Q54, Q55, Q58, H23, O13

Suggested Citation

Jin, Wei and Zhang, ZhongXiang, Levelling the Playing Field: On the Missing Role of Network Externality in Designing Renewable Energy Technology Deployment Policies (August 1, 2015). Crawford School of Public Policy CCEP Working Paper No. 1509. Available at SSRN: https://ssrn.com/abstract=2738239 or http://dx.doi.org/10.2139/ssrn.2738239

Wei Jin

School of Economics, University of New South Wales ( email )

Kensington
High St
Sydney, NSW 2052
Australia

ZhongXiang Zhang (Contact Author)

Tianjin University - Ma Yinchu School of Economics ( email )

92 Weijin Road, Nankai District
Tianjin 300072
China
+86 22 87370560 (Phone)

HOME PAGE: http://ideas.repec.org/f/pzh243.html

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