Subsidy strategies for energy technologies

The principal types of direct consumer subsidies to encourage the commercialization of unconventional energy sources (solar, conservation, synthetic fuels) are investigated. Although such subsidies can be justified on grounds that the prices to consumers of conventional energy alternatives do not reflect their full social costs, they all have serious drawbacks. Basically those subsidy schemes that are easy to administer encourage inefficient consumer behaviour while subsidies schemes that are efficient raise intractable problems of measurement. Subsidies for unconventional energy provide energy below its full social cost, thus giving the wrong price signals to the consumer. It would be more rational and effective to tax conventional energy up to its full social cost.