ABSTRACT
The chapter begins with a general overview of renewable energy and then proceeds to describe the different renewable energy technologies. The discussion then provides a discussion of the relative competitiveness of renewable energies and fossil fuels, based on an important concept: the levelized costs of electricity (LCOE). The LCOE provides a consistent way to compare the relative costs of different modes of electricity production, based on the concept of grid parity. After a critical evaluation of the various arguments that have been advanced in support of renewable energy subsidies, the discussion describes several policies that have been adopted in the United States and the EU. These policies are renewable portfolio standards, feed-in tariffs, and renewable tax credits. These policies are compared to the alternative policy strategy of taxing carbon and found wanting. The discussion then turns to a detailed examination of the historical development of nuclear power in the United States, as an example of how path dependence can be manifested in energy policy. The evidence suggests that the development of nuclear power exhibited a path-dependent process that resulted in the widespread adoption of light water reactor, an arguably inferior technology compared to the alternative technologies available during the 1950s. The chapter concludes with a discussion of public choice and the politics of renewable energy. Studies have shown that special interests have influenced the enactment of policies to subsidize renewable energy development, both in the United States and the European Union. However, ideological factors have also played a role in patterns of political support for renewables in the United States.
