The Comparison Of Renewable Portfolio Standards And Feed-in Tariff From Economics Perspective

Renewable energy has always been one of the most important topic in energy area and even in the economy system. And the comparison between the two mechanisms, i.e. renewable portfolio standards (RPS) and feed-in tariff (FIT), which can promote renewable energy’s development, has interested a lot of scholars. Because it is difficult to quantize mechanisms, most of the previous research is focused on qualitative study. But there are a couple scholars who do apply quantitative methods to this topic. For example, Witzman (1974) proved that some mathematical characters would make a difference when comparing the two mechanisms.The characteristics of this paper are that the attention is paid to market characters, and quantitative methods would be applied.Firstly, in the section of economic analysis,I will introduce Stackelberg model to this topic, assuming that the initial plays only includes one government and two producers. As a result, this is a 2-step game. In the 1st step, the leader will play the game with the follower; in the 2nd step, the government will play the game with the leader. Combining with economic qualitative approach, I think that RPS takes great advantages over FIT in attracting new entrants. As a result, from static perspective, FIT is more preferable for promoting renewable energy’s development. In addition, in this paper I think that some market characters, which include market size, economic freedom and degree of monopoly, would make a difference for the mechanisms effectiveness.In experimental section, I used EU’s panel data, testing the conclusions drawn in the section of economic analysis. The experimental results are just like the following: firstly, FIT is superior to RPS at least in the span of 8 years; secondly, both of economic freedom and market size are positive to the development of renewable energy, and the latter is significant; last but not the least, the higher the degree of monopoly, the better for RPS to be effective, and it is opposite for FIT.In the following section, I provide some advice for policy-makers, thinking that China should apply FIT as the main supporting policy while RPS should be treated as the complementary one.