Promoting the Development of Renewable Energy Under Uncertainty

  • Yoshihiro Yamamoto


Foreign direct investment in renewable energy projects, particularly where biomass is used as input, has been attracting increasing attention, partly due to the Clean Development Mechanism (CDM) of the Kyoto Protocol. In these situations, there may be an information gap between a host country’s government and the foreign firm that will invest: while the firm can collect information regarding the project, for example through a feasibility study, it will be difficult for the government to know whether the foreign firm is undertaking the project efficiently. It is supposed that the government will offer the foreign firm some remunerations, consisting of feed-in premiums (FIPs) and capital subsidies, to encourage investment in such a project. The purpose of this chapter is to determine an optimal combination of FIPs and capital subsidies that encourages investment in a CDM project by a foreign firm, while minimizing the cost of FIPs and capital subsidies. To this end, we develop a microeconomic model that accounts for this information gap. It is shown that a single combination of remunerations is determined to be optimal regardless of the existence of such an information gap. The model developed in this chapter may be considered an extension of the model developed in Chap.  5, this time applied to an investigation that accounts for uncertainty.


Clean development mechanism Feed-in premium Capital subsidy Asymmetric information 


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Copyright information

© Springer International Publishing AG, part of Springer Nature 2018

Authors and Affiliations

  1. 1.Takasaki City University of EconomicsTakasakiJapan

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