ABSTRACT
The energy production processes introduced during the 20th century – most notably those relying on the combustion of fossil fuels – have given rise to negative impacts on the global climate. Somewhat paradoxically, policy-makers worldwide now hope that future technological developments will solve the problems that technical change has caused in the past. This requires policy efforts in the energy sector to be heavily focused on innovation and technology diffusion activities as a complement to policies explicitly addressing the reduction of carbon emissions (such as tradable emission rights and fuel taxes) (Jaffe et al, 2005). In this chapter we focus on renewable energy penetration in the electric power sector, particularly the development of wind power. Investments in new carbon-free energy technology face a number of economic, political and institutional hurdles, which, in turn, may motivate the use of public support schemes aimed at speeding up the technology diffusion process (see, for example, Fisher and Newell, 2004). Nevertheless, in order to design efficient policy instruments in the field, a proper understanding of the economic and institutional conditions that govern technology diffusion in the electric power sector is needed.
