ABSTRACT
Much store has been set by ‘carbon trading’ and ‘green electricity certificate’ trading schemes in recent years. They are said to be devices which ensure costeffective implementation of green energy objectives through competition. By contrast, it has become fashionable to deride instruments which set standards for energy performance and which set prices to be paid for different types of renewable energy. They are called ‘command and control’ mechanisms. This trend is reflected in writings of authors such as Sijm and Van Dril (2003) and Sorrell (2003). They argue that while so-called ‘command and control’ mechanisms are justifiable in certain circumstances, they are inherently inferior to so-called market-based schemes. A parallel argument is the implication that the existence of emissions trading schemes such as the EU ETS render other schemes, such as energy efficiency programmes or renewable energy programmes, as irrelevant to reducing carbon emissions. That is unless the size of the carbon allowances permitted under the EU ETS is altered (Sorrell 2003, Sorrell et al. 2008). The aim of this chapter is to discuss the relevance of such conclusions. In short, are market based schemes superior to so-called command and control policy mechanisms for delivering clean energy? I shall discuss some theory and also empirical experience that suggests that ‘market-based’ mechanisms are not as cost-effective in producing large volumes of clean energy as is implied by the theorists. In this chapter I shall consider the impact of some ‘market-based’ schemes in the context of evaluating the factors that have led to renewable energy being deployed. By way of an introductory abstract for the chapter let us say thus: when the performance of ‘market-based’ instruments is compared to the so-called command and control systems it is difficult to support claims that market-based schemes are more cost effective, and also more effective in securing technology deployment. In addition, it is very misconceived to argue that the market-based emissions trading schemes should have some sort of precedence over other mechanisms. I shall discuss how this can be explained theoretically, and also discuss the empirical experience. I shall begin by outlining differences between so-called ‘market-based’ mechanisms and also so-called ‘command and control’ systems. I shall then develop a line of argument about the relative efficacy of these two different categorizations
of policy instruments. My next step will be to relate this line of argument to the established theory in a process of demonstrating that the perception of classic liberal theoretical support for so-called market-based instruments has been misplaced. I shall then move on to illustrate my arguments and theoretical points by empirical analysis of the cases of the EU ETS and renewable energy financing. I shall spend most time on this. I shall investigate how the attempt to establish market-based ‘competition’ in the British renewables case has run into problems which would not have been faced had a so-called ‘command and control’ feed-in tariff been implemented from the beginning. Indeed a key theme of this narrative section is that the British renewable support mechanism has been adjusted increasingly in the direction of a feed-in tariff. That in itself is a signal of the difficulties of implementation of a green electricity certificate, ‘market-based’ system. I shall also look at how this controversy has related to debates about EU regulation of renewable energy. In addition I shall look at the USA’s renewable energy programme to assess the evidence on the efficacy of market-based instruments to support renewable energy. Finally I shall draw some conclusions.
