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Environmental Externalities, Market Distortions and the Economics of Renewable Energy Technologies

This paper reviews life cycle analyses of alternative energy technologies in terms of both their private and societal costs (that is, inclusive of externalities and net of taxes and subsidies). The economic viability of renewable energy technologies is shown to be heavily dependent upon the removal of market distortions. In other words, the removal of subsidies to fossil fuel-based technologies and the appropriate pricing of these fuels to reflect the environmental damage (local, regional, and global) created by their combustion are essential policy strategies for stimulating the development of renewable energy technologies in the stationary power sector. Policy options designed to internalize these externalities are briefly addressed.

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Energy Specializations: Electricity – Generation Technologies; Renewables – R&D and Emerging Technologies; Renewables – Other

JEL Codes:
Q2 -
O32 - Management of Technological Innovation and R&D
Q29 - Renewable Resources and Conservation: Other

Keywords: Renewable energy, externalities, market distortions, adders, electricity generaiton.

DOI: 10.5547/ISSN0195-6574-EJ-Vol25-No3-7

Published in Volume 25, Number 3 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.