Policy Objectives

If a government perceives a market failure, it will create a policy to try and move the market to a socially optimal price and quantity.

Market-Based Instruments

These instruments often changes prices or costs so that the market will settle on a different price and quantity.

Non-Market-Based Instruments

These instruments often provide information to provide non-monetary incentives to consumers that make them more or less likely to purchase products.

Policy Categories

• Mandate/Target: rule enforced by a governing body
  • Example: CAFE Standards, Clean Electricity Standards
• Incentive/Subsidy: money given for reaching a given target
  • Example: Cash for Clunkers
• Tax/Penalty: money taken in exchange emissions or pollution
  • Example: Carbon Tax
• Consumer Standards: certification for goods or services meeting a criteria
  • Example: Energy Star Rating

Tax Policy Types

• Investment Tax Credit: a tax credit, usually proportional, to the investment cost of installing a renewable energy or efficiency system
• Production Tax Credit: a tax credit proportional to the renewable energy produced by a system
• Tax Credit: a tax credit is directly subtracted from the total tax owed by an individual or corporation
• Tax Deduction: a tax deduction is subracted from the income eligible for taxation