World Energy Outlook 2006

These examples reflect differences of perception in Europe, North America
and Japan over the impact and acceptability of different approaches, such as
increases in fuel prices or additional regulation. Overcoming barriers requires
such a tailored approach. But, in many cases, a regulatory approach will be
needed to reinforce market mechanisms, such as the fuel taxes or carbon
penalties that have been widely proposed and increasingly adopted in other
sectors. This may be because the near-term effects of market options alone are
too limited, making increasingly aggressive fuel-efficiency regulations
necessary to achieve sufficiently rapid change in the transport sector. In
developing and implementing such policies, policy-makers need to, and
invariably do, take into account the consequences for national car makers.
The result can be more politically palatable, though at same cost in terms of
macroeconomic efficiency.
A different story emerges on closer examination of the policies proposed for
saving electricity in the residential and services sectors. End users buying
electrical equipment or appliances face problems of inadequate information
(see Chapter 8). Changes in the price of electricity, as a result of government
decisions on tax policy or the costs of CO2 permits, could be expected to make
considerable inroads in demand.
Enhancing the Role of Renewable Energy
Each of the world’s major economies has proposed policies to promote the
development and penetration of renewable energy and many already have
policies in place. As with efficiency policies, there are similarities and
differences in the policy approaches – and the barriers to their full
implementation. New policies to promote renewables can be expected to have
considerable implications for investment in this source of electricity. Indeed,
policies already under consideration are projected to achieve a 27% share of
renewables by 2030, compared with 22% in the Reference Scenario. In the
Alternative Policy Scenario, investment in renewables-based electricity plants
reaches $2.3 trillion, amounting to half the total investment in new generating
plant.
To achieve this level of investment in renewables, governments will have to
introduce vigorous incentives. A number of countries have already achieved
much by using feed-in tariff mechanisms. 1 Another approach is to impose a
requirement that a given proportion of electricity be produced from
renewables – a portfolio quota – with or without accompanying tradable
certificates, which increase the market orientation of the policy. A third
approach is to offer a tax incentive, such as the US production tax credit. Green
1. A feed-in tariff is the price per unit of electricity that a utility or supplier has to pay for renewablesbased
electricity from private generators. The government regulates the tariff.
254 World Energy Outlook 2006 - THE ALTERNATIVE POLICY SCENARIO
© OECD/IEA, 2007