The success of a fiscal instrument rests on its ability to influence the entire electricity market and these three decarbonization drivers in particular.

2. A small number of RETs are competitive with fossil fuel generation now. Given that some renewables are competitive now, fiscal instruments can be expected to increase the installed generating capacity of renewables in Canada to some degree. However, ambitious carbon reductions will require binding fiscal instruments that close the price gap between fossil fuel generation and renewable generation.

3. Innovation reduces the cost of renewable generation. Innovation in RETs—primarily from international sources—will reduce the cost of renewable generation in Canada. Thus, the installed generating capacity of renewables in Canada is expected to grow over time, even without a change in policy.

4. RETs are immature technologies with uncertain costs and practical potential. Any model of RETs should address the significant uncertainty in predicting their cost and practical potential.

5. RETs are at different stages of technological development. Some instruments, such as an RPS, can be effective at deploying RETs that are commercially viable in the short term; R&D subsidies are better suited to RETs still in development.

6. The temporal impacts of the EFR instruments differ. The path of emissions reductions and renewables penetration can vary significantly between instruments. Instruments that require reductions from renewables in the short-term will necessarily be more costly than instruments that target longer-term reductions. This effect occurs when the price of renewable supply drops over time.

7. Each fiscal instrument has a different impact on producers, consumers, government and society (see Table 8). Simply comparing the cost of each instrument can mask these differences.

8. Program design and detail matter, but are not captured in the analysis. We assessed the EFR instruments at a high level, but observe that enabling conditions significantly impact outcomes. Enabling conditions such as local permitting, regulations, transmission distance and access to the grid all impact the technical and economic feasibility of the renewables supply and ultimately the predicted results of the EFR instruments. Blindly assuming that the EFR instruments will achieve cost-effective carbon reductions without a clear understanding of the enabling conditions and barriers to renewables uptake is highly risky policy.

9. The instrument’s long-term durability is important. This is particularly true when start-up capital costs are high and returns on investment must be established before the project begins.

Table 8
Summary of the Effects of Each Fiscal Instrument on Producers, Consumers, Government and Society

	Base Case	Emissions Price	Renewable Portfolio Standard (RPS)	Renewable Generation Subsidy	Combination RPS and Renewable Generation Subsidy	Renewable R&D Subsidy
To reduce CO2 emissions by 12% from 2010 to 2030, you would see...	(No attempt to reach target)	Emitters pay $10 for each tonne of CO2	24% of generation come from renewable sources (this is 9% of annual Canadian generation)	A government subsidy of $0.006 for each kWh of renewable generation	An RPS at 24.21% and a subsidy of $0.002/kWh	The public and private sectors increase their R&D spending by 61%
Impact on electricity production	Renewables gain some market share; CO2 emissions reduced by 5%	Renewables penetrate slightly more quickly than in the base case; electricity producers work hardest on reducing carbon emissions	A greater penetration of renewables than with the emissions price; costly for electricity producers at first but this cost decreases over time	A greater penetration of renewables than with the emissions price; not a driver for reducing emissions intensity (= efficiency)	A slightly greater penetration of renewables; fossil fuel generation unchanged	A high penetration of renewables near the end of the second stage
Impact on consumers	Status quo	Electricity prices rise the most; conservation emphasized; negative impacts on some sectors	Overall electricity prices are lower than with the emissions price, but rise and then fall; conservation not emphasized	Electricity prices remain the same; conservation not emphasized	Electricity prices slightly lower than with the subsidy alone; conservation not emphasized	Electricity prices remain unchanged; conservation not emphasized
Impact on government	Status quo	Revenues raised (as government collects on emissions price); could redistribute to affected sectors	No government revenues raised, lost or transferred	Significant disbursements	Significant disbursements ($1 billion)	Significant disbursements
Impact on the renewable sector	Status quo—some continued penetration	Generation increases and production costs decrease; some increase in profit; R&D levels high	More generation increase and slightly more profit than under emissions price, but less R&D	Greater profits as more production lowers costs; high investment in R&D	Generation and R&D slightly higher	Highest potential penetration (near end of second stage) with high R&D
Impact on Canadian societal welfare*	Status quo	Lowest welfare cost	Greater welfare cost than with emissions price and less than with generation subsidy	Second highest welfare cost	Welfare cost slightly lower than with generation subsidy	Highest welfare cost
Level of uncertainty in reaching target	Target is not achieved	Low; all decarbonization drivers are acted on to achieve the target	Medium; only two decarbonisation drivers are affected	Medium-high; only one decarbonisation driver affected	Medium; only two decarbonisation drivers affected	High; only one decarbonisation driver affected and penetration not assured