Renewable energy technology and policy for development

The costs and performance of renewable energy technologies have reached the stage where the number of economical applications in developing countries is increasing, particularly in the grid and off-grid markets for electricity. The paper provides a review of policies. The conclusions are as follows. (a) Investments in renewable energy should be helped by competition and regulatory reform in the energy industry, in the electricity industry in particular, since such reforms should reduce the subsidies, which historically have permeated the countries' industries, for electricity production from fossil and hydro resources. (b) The scope for further cost reductions is appreciable in all key technologies. There are positive externalities to investment, in the sense that each generation of investments is acting to reduce the costs of future generations; such benefits ideally need to be recognized in tax and regulatory policies and in budgetary allocations for research and development (R&D) and education and training. (c) The environmental advantages of renewable energy will become more apparent as developing countries begin to introduce their environmental policies on fossil fuels. The paper also evaluates the economists' recommendations for carbon taxes, which would favor renewable energy investments. The case for such taxes has been widely ignored by policy makers. The paper suggests that (d) a more workable and focused policy would be to accelerate the development of the ''renewable energy option''; this would be economically beneficial in itself and at the same time would reduce the uncertainties and costs of responding to the challenges posed by climate change.