Generating electricity from conventional fossil fuels like coal and natural gas releases greenhouse gases, creating substantial negative externalities. Governments globally are setting ambitious targets to de-carbonise their power sectors.
There are several policy levers available to address this market failure. The first is market-based pricing, such as carbon taxes or emissions trading systems (ETS) that penalise high-polluting power generators. The second is financial support, such as subsidies or feed-in tariffs for solar, wind, and battery storage projects. Finally, state-directed regulation or direct public investment in green infrastructure (such as national transmission grids) can help overcome the high capital costs and coordination failures inherent in transitioning to a clean energy future.
Evaluate government policies that could be used to encourage the transition from fossil fuels to renewable energy sources in electricity generation. Use at least one appropriate diagram in your answer.
