How I learned to stop worrying and love the RET

In this chapter, it is argued on the contrary that the RET is not merely complementary to the carbon market, but is a welfare-improving policy, even after the introduction of the carbon price. The central argument is that, because of political resistance to carbon pricing, the price has been set at a level that is below that of the optimal path, and must increase more rapidly than would be consistent with a Hotelling rule (Hotelling 1931). The relevant criterion for assessing the RET is not the cost of mitigation relative to the current carbon price but the cost relative to the true shadow price of CO2 emissions, which must be assessed in relation to abatement costs that must be incurred in the future if emissions are to be reduced in line with the government’s stated targets.