Moral Hazard of Renewable Energy Economic Incentives: A Private Sector Perspective

Investors need certainty. Yet, government incentives are public policy-based goods. Public policy is not law and can change at any moment. Change in government, change in strategy, change in budget all influence public policy. Acknowledging possible public policy change upfront is a necessary part of an investor’s risk assessment. Assuming no change in policy creates the moral hazard of banking on the non-bankable.

Indeed, many countries have recently slashed government incentives for renewables and alternative fuels. Blanket subsidies are simply unsustainable. When not tailored to be fit for purpose or time-bound, tax and economic incentives foster uncertainty and moral hazard. The result is harm to energy markets and government treasuries.