Government Policy and Development

Posted: April 14, 2014 in Uncategorized

Development of clean energy markets is vital to the ability of wide-scale adaptation in the global economy. As I have said before, the most sure-fire way to do this is through the power of business innovation, Schumpeter’s “creative destruction” if you will. In this post I want to explore how government can play a significant role in this process.

Government is not the everywhere and always “bad guy” nor the epitome of how to fix problems. However, I do believe that in terms of development of clean energy, the governments can be a significant impact for good. At least that is my view at the moment. With that said, government should not be a dominant player is this game, but rather the facilitator or incentives. We have discussed before the power of price and how there is currently a disconnect between price of energy supply and the incentive to invest in renewables. Government has, all throughout the world, taken this issue upon themselves to provide incentives via energy policy. There are a wide variation of policies, some better than others, and as with most policy options there are multiple ways to look at it.

For this post, I want to focus on the validity of accepting the role of government sponsored incentives. I have no doubt that if there was a significant change in the energy supply and prices skyrocketed for fossil fuels, that innovation would take place for renewables, at some point. I find myself believing that we should begin to develop these markets sooner rather than later, especially before we wait for the potentially damaging situation where these costs of fossil fuels do skyrocket.

Given that we are aware of the current failure of wide scale adoption of clean power in the United States, how can we use policy to promote development? I like to think of it as a portfolio that a government has which allows for a variety of tools that can be used to development the clean energy markets. There is no need to think that we should have just one policy, as that will limit the impact of total development. So which policies should be included? Well, there are a wide variety of policies that are proven to be effective, but I find myself in favor of Feed In Tariff policies more than any other. In a later post, I will discuss FIT policies in much more detail, but for now I want to focus on just the acceptance of government policy, and not the importance of consistency in policy.

Policy can help to overcome the difficulty in generating development because we subsidize for now, in an effort to promote long term efficiency. Policy that can prove that economies of scale can be achieved and wide scale implementation with minimal cost is something that we should be open to. Remember, we subsidize fossil fuels as well, so it is not a new idea to help make energy more affordable to the end user. When a lack of incentive is present in the market, for an issue that needs to be addressed, the government should be a player that helps to facilitate change. Policy is the tool that can do it, and choosing policy wisely is important. Regulatory restrictions are an option, but not one I would advocate. I want to advocate for tools that provide an incentive for investment into cleaner technologies, which can help to develop a market globally. As a nation, we spend an incredible amount of money on things that are not all that important, in my opinion anyway. Energy should be something we spend money on, and specifically the development of energy markets that will provide significant benefits for generations to come. To do this, we could benefit from attractive policy to induce investment.





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