Policy options

Policy options that Governments could use to influence the fuel mix in a coun-try range from 'command and control', such as fuel use requirements, economic instruments and emission limits or standards, to more consensus building/persuasive instruments, such as voluntary agreements, incentives and R&D. Major actions taken to date have included:

— Loosening the restriction on natural gas use for power generation in countries within the European Union and in the USA; this, when combined with increas-ing competition, has led to the increase in natural gas use;

— A political decision by some countries to discontinue nuclear power programmes;

— Deregulating and unbundling the electricity supply industry.

In the majority of OECD countries, policies have also been put in place to pro-mote renewable energy. These policies merit further examination, since, although non-hydro renewables are projected to be the fastest growing source of electricity generation, they also account for the smallest proportion of electricity production to date (and their proportion will remain small even if these policy objectives are

achieved — see Table I). Most countries cite environmental objectives (i.e. GHG commitments or local air pollution issues) as a reason for wishing to promote renewables, although fuel diversity/energy security is an important stated criterion for Italy, Japan, New Zealand, Spain, Turkey and the UK.

The policy measures in OECD countries to encourage renewable electricity include taxes, grants, capital or output subsidies, guaranteed markets, voluntary approaches, R&D and renewable energy targets. These are listed for selected OECD countries in Table IV.

Policies to promote non-hydro renewables were typically introduced at the beginning of the decade and have had some success to date, with a sharp rise in elec-tricity generated from combustible renewables and a small rise in solar and wind electricity. The mix of policies in place in each country generally includes both 'command and control' type instruments and consensus building/persuasive pro-grammes. However, both sets of policies are often in direct contradiction to stated national or international aims (such as the shared goals mentioned above).

For example, Government intervention that guarantees a market for a certain amount of higher priced renewable electricity, as in the UK's Renewable Order under the non-fossil fuel obligation (NFFO), distorts the electricity market and as such is opposed to the general policy direction of increasing the importance of market forces in that country. However, the NFFO was designed to run for a limited time period only and aims at reducing the environmental effect of electricity in the longer term by encouraging commercialization of certain renewable energy sources. It is paid for via a levy on consumer bills. Similar schemes are in place in other countries, such as Canada and Ireland, although, in all three countries, only limited increases in renewable electricity capacity are encouraged. Preferential power purchases may even be ruled unconstitutional in some OECD countries.

The unilateral introduction of carbon taxes (although favouring non-carbon energy) could reduce the competitiveness of the domestic industry and/or reduce domestic demand for indigenous fuels. This would adversely affect economic growth, employment and energy security and is the reason why so few countries have introduced such taxes (and have often granted exemptions or reductions to large users when such a tax is in place).

Negotiated policies such as voluntary agreements may reduce the 'pull' on electricity policy in any one of the four directions shown in Fig. 1, since such policies represent a negotiated position between two or more interested groups and as such are likely to represent a certain degree of compromise. Voluntary agreements are an example of such an approach that is being introduced in OECD countries.

Voluntary agreements in nine OECD countries include measures to increase elec-tricity generation from renewable sources⁶. The procedure followed in setting up

6 Voluntary agreements have been introduced by Austria, Norway and Switzerland in addition to the countries shown in Table III.

Information, Financial Electricity supply industry

Ireland и- 4 (buy-back rates) >" Partnership

Government

N e w Zealand >" (advice to planners)

^ 3 y y

Spain ^ 4 (3 rd party) y У

Sweden y ^ 1, 3 ^ 1 y

Turkey y

UK y 1 y (Waste disposal

standards)

- y y*

USA y 1,3 ^{У У У}

Source: Ref. [4].

a Information, education and exhortation programmes:

1 - Publications, advertising campaigns;

2 - Courses for industry;

3 - Education programmes in schools and workplaces;

4 - Renewable energy advice centres;

5 - Others.

b Financial incentives:

1 — Grants and subsidies involving direct transfers;

2 — Credit instruments (interest rate loans, soft loans, loan guarantees);

3 — Tax exemptions (tax reliefs, credits, deferrals);

4 — Others.

c Regulatory measures and standards:

1 - Planning/siting legislation;

2 - Environmental impact assessment;

3 - Compulsory legislation for utility compliance, e.g. purchase price guarantees;

4 - Others (building codes).

voluntary agreements and their degree of 'voluntarity' varies by country. For example, in some countries and sectors voluntary agreements allow self-setting and monitoring of targets, while in other countries such agreements are more formal, negotiated 'voluntary agreements' that are binding when they are signed. The US Climate Challenge Programme is an example of a voluntary approach between the Department of Energy and a utility (as no utility has to join), whereas the Dutch A MAP II agreement with the electricity distribution companies, whereby they under-take to produce 3% of electricity from renewable sources, is an example of a voluntary agreement.

4. CONCLUSIONS

OECD countries can progress towards their GHG commitments in many ways, including increased end-use efficiency, energy conservation, cogeneration, elec-tricity trade, promoting more efficient elecelec-tricity production and, potentially, AIJ.

Another option is to decrease the carbon intensity of electricity generation via a switch to less carbon intensive fuels.

The C 02 intensity of electricity generation has been decreasing steadily because of the increased importance of nuclear power and gas fired electricity, as well as the technological improvements in fossil fuel electricity generation, although reducing GHG emissions was not the driving force behind the policies that led to these trends. The shift to combined cycle gas turbines in some deregulated markets will in any case reduce the C 0² intensity of electricity to a certain extent. The cur-rent GHG commitments of OECD countries have acted as an impetus for many coun-tries to introduce policies that would further reduce the carbon intensity of electricity generation. These policies often concern the promotion of renewable electricity (since other factors may constrain nuclear power expansion and the economics of gas fired generation ensures it needs little promotion).

Policies vary by country, but they aim at balancing conflicting demands of different groups, taking into account the fact that large or sudden changes in the fuel mix often meet resistance because of increased or decreased pressure from groups regarding economic or employment issues, environmental emissions and/or safety, and perceived effects on international competitiveness and/or energy security.

The overall shape of policies is determined by increasing electricity demand, the changing structure of the electricity supply industry, technological innovations and the declining Government intervention in electricity supply (with greater compe-tition leading to a downward pressure on costs).

Policies recently put in place include instruments such as a guaranteed market or a guaranteed minimum price for renewable electricity, voluntary agreements between two or more interested parties, as well as investment incentives, regulatory measures, information programmes and R&D. The importance of renewable

elec-tricity has risen slightly since these programmes were put in place and is projected to continue doing so. However, it is difficult to evaluate the effectiveness of different policy mixes, many of which were introduced recently, because achieving a short term increase in renewable electricity via discrete or limited Government support may not be enough to lead to a durable increase in this energy source. Deregulation adds a further uncertainty.

r j

ACKNOWLEDGEMENTS

The authors are grateful for the thoughtful comments provided by L. Solsbery, S. Flaim and G. Lammers; these comments helped to improve the content and clarity of the paper.

REFERENCES

[1] I N T E R N A T I O N A L E N E R G Y A G E N C Y , World Energy Outlook - 1995 Edition, IE A , Paris (1995).

[2] I N T E R N A T I O N A L E N E R G Y A G E N C Y , Electricity Supply Industry: Structure, Ownership and Regulation in O E C D Countries, IE A , Paris (1994).

[3] I N T E R N A T I O N A L E N E R G Y A G E N C Y , Energy Policies of I E A Countries — 1994 Review, I E A , Paris (1995).

[4] I N T E R N A T I O N A L E N E R G Y A G E N C Y , Electricity Information 1994, IEA, Paris (1995).

[5] I N T E R N A T I O N A L E N E R G Y A G E N C Y , Electricity and the Environment, IEA, Paris (in preparation). i

[6] I N T E R N A T I O N A L E N E R G Y A G E N C Y , Policy Aspects of Renewable Energy in O E C D and N o n - O E C D Countries, I E A , Paris (in preparation).

THE PROCESS OF BUILDING CONSENSUS