The NewERA model is a unique tool that allows NERA’s experts to effectively measure the macroeconomic and detailed sectoral impacts of changes affecting the energy sectors, such as technology improvement and environmental regulation.

Impacts of Renewable Energy Subsidies/Incentives on Costs of Achieving Renewables Goals is part of a series of papers based on NewERA model results that examine the economic impacts of various policy and other developments. This paper evaluates the relative costs of various policy mechanisms designed to promote renewable energy technologies in electricity generation. The authors examined economic impacts of three different policy strategies:

• A national renewable energy standard;
• A renewable standard achieved through a credit on capital costs; and
• A combined national renewable energy standard and localized distributed generation requirement.

The analysis shows that the most efficient strategies are those that directly reward desired behavior. Therefore, a strategy relying on a credit on capital costs was by far the most costly because of the perverse incentives it would create. Regarding the unstated goal of reducing greenhouse gas emissions, the most direct strategy—a cap-and-trade system or carbon tax—would be more efficient than any policy designed to increase electricity generation from renewable sources.