Appendix A: Survey of Renewable Energy Fiscal Instruments

INTRODUCTION

This appendix provides a brief overview of fiscal instruments used to promote the uptake of renewable energy technologies. Although there are a wide variety of potential instruments, three have emerged as “preferred methods” for RE promotion in Canada, the U.S. and other jurisdictions:

While other instruments (e.g., income tax credits and deductions, lower taxes on biofuels or renewable energy equipment) have been used with some success, they are generally considered to have less of an impact than the four broad-based mechanisms identified above.

For each of the three, the discussion provides a brief description of the instrument, an overview of the current Canadian situation, and experience in other jurisdictions.

R&D SUBSIDIES

Description & Benefits

Subsidies for research and development of renewable energy technologies (RETs) are quite common, including government-sponsored research programs, joint initiatives, grants and tax incentives. Increased support for R&D and demonstration programs could help advance current grid-power renewable energy technologies (RETs) and develop next-generation technologies, thus reducing technical and information barriers to their widespread use.

Current Canadian Situation

Existing Canadian federal R&D subsidies for renewable energy include the following:

Foreign Experience

Many countries provide R&D subsidies for renewable energy. For example, the United Kingdom is developing and testing ocean wave energy devices through a research and development program that includes promotion of technologies and expertise of overseas markets. Denmark, the Netherlands, Ireland and Germany also have active renewables R&D subsidy programs.

GENERATION SUBSIDIES

Description & Benefits

A generation subsidy for renewable energy improves the competitiveness of these technologies relative to conventional generation (e.g., fossil fuels and nuclear). Subsidies can be offered for capital costs of equipment installation and initial marketing (e.g., green pricing, green tags/renewable energy credits/certificates, and capital cost allowances) or to generators on a per-kWh basis for actual green electricity production (e.g., production incentives, market incentives, and net metering).

Utilities benefit from these subsidies by building customer loyalty, expanding business lines and developing expertise prior to renewable electric market competition.

Current Canadian Situation

Existing Canadian federal renewable energy generation subsidies include the following:

Existing Canadian provincial renewable energy generation subsidies include the following:

Foreign Experience

The United States has the following renewable energy generation subsidies:

The following renewable energy generation subsidies, among others, are made available overseas:

RENEWABLE PORTFOLIO STANDARDS

Description & Benefits

A renewable portfolio standard, or RPS, is a popular form of legislation taking the form of a market share requirement or quota obligation. An RPS defines a target share or amount of renewable energy to be supplied by an obligated entity such as a power producer (e.g., utility) at a federal, regional or local level. The target can be met through real supply of renewable energy or through purchase of renewable energy credits when regional renewables are inaccessible.

There are three types of targets a renewable portfolio standard can define:

1. A minimum renewable energy percentage of total annual supply, where the percentage goes up every year or few years (e.g., starting at 1% of total and increasing annually by a percentage point until 2010)

2. A minimum renewable energy incremental annual supply (GWh) (e.g., starting at 200 GWh/yr and increasing annually by 100 GWh/yr until 2010)

3. A minimum renewable energy capacity (MW) by a certain year (e.g., target of 1000 MW by 2010).

An RPS requires each supplier of end-user electricity to demonstrate, through ownership of tradable “renewable energy credits” (RECs), that they have supported the generation of a certain amount of renewable power. The regulatory role is limited to:

A renewable procurement target is similar to an RPS, except it is usually internally defined by a large organization such as a federal, provincial or municipal government. This procurement target sets a goal to purchase a certain share or amount of the organization’s total annual electricity from renewable sources. Renewable procurement targets can also be defined in three ways, similar to the RPS types above, except electricity is consumed rather than supplied. Also similar to an RPS, a procurement target can be met through real consumption of renewable energy or through purchase of renewable energy credits when regional renewables are inaccessible.

Some benefits of RPS legislation are that it:

Current Canadian Situation

Although no national RPS is planned for Canada, a federal-provincial working group is currently examining how renewable portfolio standards could work in the Canadian context (considering that utilities are under provincial jurisdiction).

As an unlegislated measure, Canada’s 2002 federal Climate Change Action Plan set a minimum renewable procurement target of 10% (3.9 Mt) of new electricity-generating capacity in Canada. If implemented, it would be the strongest federal procurement program in North America. This plan suggested the following to help achieve the federal goal:

Although no Canadian provincial portfolio standards have been legislated yet, following is a summary of progress on provincial RPSs and defined procurement targets:

Lastly, in terms of green procurement, the Canadian government has purchased green power from utilities in Alberta, Saskatchewan (25,000 MWh for $12.4 million), and P.E.I. (13,000 MWh for $4.5 million). A number of municipalities currently have renewable procurement targets: