REN21 - Rationale for Renewable Energy Promotion Policies

There is broad consensus that renewable energies should have a much more important role in energy systems than they currently have. Current market frameworks and other coordination mechanisms result in lower than desirable renewable energy shares. Therefore, a deliberate renewable energy promotion policy is required.

These are some of the most important arguments for an active renewable energy promotion policy that are valid for all countries, though to varying degrees:

The current level of renewable energy in most countries is even lower than would be economically efficient at today's market prices. As newcomers, renewable energy technologies (RET) face a series of market barriers.
Many analysts are convinced that the long-term resource scarcity fossil energy faces is still not entirely priced-in. If current prices of fossil fuels reflected their scarcity this correctly, RET would become more competitive.
The prices of fossil fuels are highly volatile due to short-term changes and incidences in the world's energy markets. Renewables are generally local energies and, as such, provide diversification of the energy mix with a security premium. It is widely agreed that renewables should have a higher share for energy security reasons in the energy portfolio in particular in oil and gas importing countries.
The use of fossil fuels is, to varying degrees, damaging to the human health and the local environment. The reduction of these impacts by technical means increases the cost of fossil fuel use. Negative environmental effects (externalities) must be internalised, i.e. reflected in the energy price. All this improves the competitive position of renewable energy technologies.
Renewable energy technologies offer prospects for a dynamic industrial policy. In industrialised economies plagued by unemployment and reduced growth perspectives, as well as in some developing countries, RET have proven to be an option of developing industries with a future.
The deployment of RET in rural areas in developing countries offers opportunities for the use of local natural resources, for employment, and ultimately for institutional capacity. RET can be effective in achieving the Millennium Development Goals as illustrated with many examples in the REN21 issue paper Energy for Development.

In addition, fossil fuels have a negative impact on global environmental goods that renewables do not have. RET arguably constitute the most significant instrument to help bring down the global carbon emissions curve, as discussed in the REN21 issue paper Changing Climates. For some countries, though, the shared but differentiated responsibilities vis-à-vis global externalities seems not to be the primary concern. For this situation, the international community has established funds like the Global Environment Facility ( Link to an external resource GEF) and support schemes such as the flexible mechanisms of the Kyoto Protocol. It would be wise to structure the national RE policy in a way that allows the country to benefit from instruments such as Clean Development Mechanism (CDM) or Joint Implementation (JI), and from carbon finance markets in general.