Carlo Stagnaro, writing in the European Energy Review, finds that Italy’s generous feed-in tariffs for solar power are creating challenges for both the Italian budget and the Italian energy market.
In terms of investments, Italy’s experience with solar power is definitely a success… Only Germany has more PV capacity. Indeed, Italy has more solar capacity than Japan, the US and China together.
But the success of Italian solar power came at a cost. It is built on Italy’s very generous incentive scheme, based on an extremely high feed-in tariff that is awarded to PV-installations (at least, to installations that were built before the end of June 2011). In addition, distributors are required to accept and dispatch “green” energy with top priority, regardless of the volumes offered. The combination of a guaranteed high price and virtually unlimited supply created the grounds for the boom.
Not only has government support for solar power led to high costs (€3.9 billion in subsidies in 2011 alone), it has also had another unforeseen effect: it has undermined the very market design that, until recently, had worked remarkably well, and had made Italy one of the most competitive electricity markets in Europe.
Stagnaro works for the Istituto Bruno Leoni, based in Milan.
In the comments on yesterday’s post on the Jevons Paradox, Rick Lightburn notes an article on the rebound effect by the Rocky Mountain Institute, ”The ‘Rebound Effect’: A Perennial Controversy Rises Again” (and see a follow up on the RMI blog). The RMI article links to and responds to, among other things, a comprehensive analysis by The Breakthrough Institute, “Energy Emergence: Rebound and Backfire as Emergent Phenomena” (link is to overview, full report here in PDF format).
RMI is a longtime proponent of energy efficiency policies–founder Amory Lovins famously said, “Energy efficiency isn’t just a free lunch; it’s a lunch you are paid to eat”–so it is not surprising that they’re somewhat critical of arguments suggesting large rebound or backfire effects from efficiency improvements. Breakthrough’s report seems a more straightforward review of the literature on the topic, mostly with an aim of making technical economic work done on the subject accessible to the non-economist.
To school yourself on energy efficiency rebound effects, I’d suggest starting with Breakthrough’s report, then consider the RMI article’s critique and follow its links for further commentaries. For increased depth, read from the literature surveyed in the Breakthrough report and then tackle The Myth of Resource Efficiency: The Jevons Paradox book which I discussed here yesterday. And, by all means, check out Jevons’s The Coal Question.
MORE: The RMI’s article was mostly prompted by David Owen’s article in The New Yorker, “The Efficiency Dilemma” (subscription req’d). Owen further developed his work into a book, The Conundrum: How Scientific Innovation, Increased Efficiency, and Good Intentions Can Make Our Energy and Climate Problems Worse. You can listen to Russ Roberts interview Owen at EconTalk.