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From this perspective, the interaction between RE and CO2 policy instruments, which work in opposite directions in transferring wealth from utilities to industry customers and vice versa, tend to off-set each other's effects, at least in part.

The quantitative assessment of the impacts of the merit-order effect and other interactions needs further research. This assessment will be crucial to determine the real costs of renewable energy incentives for society.


42 The juxtaposition of a CO2 policy instrument of a fixed quantitative form, such as the EU ETS, and of policy instruments specifically promoting the early deployment of RE technologies, may lead to a CO2 price that is lower than it would have been otherwise. It may also raise the overall costs of achieving the short-term CO2 reductions of the ETS, as this is attained through some costlier emission reductions driven by RE technology deployment. Meanwhile, both policies entail wealth transfers between utilities and deregulated industry customers that work in opposite directions, thereby off-setting each other's effect.

Looking farther into the future, the prominent role of RE technologies in mitigating climate change becomes more important. Current policies pave the way for making their necessary large-scale deployment affordable, thanks to learning-by-doing processes in the broad sense of the term.

Opponents to RE policies have yet to demonstrate their potential to lock-out the cleaner fossil fuel technologies in the same way that they unlock the RE technologies. The optimal mix of R&D support and early deployment incentives remains difficult to design with great precision, as learning curves are useful tools but not an exact science.

One possible policy recommendation would be to better take into account the potential interactions among policy instruments, in a way that reinforces the effectiveness of both climate and RE instruments.

This examination of the interactions between RE technology deployment and CO2 emission-reduction policy instruments also reveals important areas for future investigation. The reduction of infra-marginal rents for utilities resulting from the merit-order effect raises issues relating to future investments in new capacities, as well as research relating to the appropriate calculations of true benefits and costs of renewables in complex electric systems. The true cost of the deployment policy for ratepayers is not the simple sum of the incentives, but much less, as renewables progressively reduce the market costs of electricity through the merit-order effect. Finally, how CO2 prices and RE deployment interact in wealth transfers between various stakeholders, notably electricity customers and utilities, deserves further scrutiny.


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