Tools and Policies to Promote Decarbonization of the Electricity Sector
In this chapter of Handbook on Electricity Markets, RFF researchers summarize market and nonmarket policies that can encourage decarbonization of the electricity sector.
Abstract
This chapter summarises both market and non-market-based policies and tools available for encouraging decarbonisation of the electricity sector. Market-based policies include carbon pricing, through a carbon tax on electricity generation or a cap-and-trade program on emissions, and second-best tradable standards, which include emissions intensity standards, clean energy standards, and renewable portfolio standards. Popular non-market, technology-specific policy mechanisms discussed include targeting specific technologies through subsidies, or discouraging the use of dirtier resources, such as coal, through a mandated phase-out. Policy options for encouraging energy efficiency in the power sector to reduce emissions are also explored. Policies that price carbon are more economically efficient than other, particularly non-market policies but can be politically challenging. Since multiple policies are often used simultaneously, interactions between these various market and non-market policies are discussed. Examples are drawn from experiences in several countries, including parts of Europe, the US, Asia, and South America.
