That experience - particularly in how the basic elements of FiT policies have evolved over time - contains some very important and relevant lessons for Ontario as it considers the long-term development of its own policy.
As a starting point, the policy brief assesses the policy drivers behind the Feed-in Tariff policy. Research and policy experience suggest that though it is not the most cost-effective way of reducing carbon emissions, it is a very effective way of promoting the penetration of renewable forms of energy into an electricity system. Moreover, it is a very good way of driving down the costs of renewable energy development and deployment. These two latter policy drivers seem to be particularly relevant in the Ontario context.
In terms of the lessons from Europe, the most significant is clearly the need to control program costs in the long-term. The German experience is useful in this regard, particularly in the use of a tariff “degression” policy that stipulates annual tariff reductions on new contracts commensurate with the reduction in costs of renewable technology development and deployment.
The other long-term issue relates to the relationship between a FiT and a carbon pricing policy. Ontario, as part of its membership in the Western Climate Initiative, is committed to bringing in a cap-and-trade system in the near future. Research on the implications of bringing in such policies simultaneously suggests that there can be perverse effects, such as lower overall emission reductions. This “interaction” research also suggests that these effects can be avoided through careful policy analysis and program design.
Sustainable Prosperity will continue to provide relevant policy analysis on the topic of Ontario’s “green economy” policy development.
For further information, please contact Alex Wood, Senior Director, Policy and Markets by email at: awood@sustainableprosperity.ca.
