Policy instruments for a market penetration of low carbon technology in developing nations

Purpose – The purpose of this paper is to investigate impacts of policy instruments for market penetration of renewable technologies in South Africa. Based on the current debates about renewable energy policies and the comparative advantage of the country in terms of coal resources the author set up a framework focusing on renewable energy price subsidies, carbon tax and renewable energy portfolio standard. Design/methodology/approach – Using a simulation model through a linear programming approach the paper assesses impacts of those policies on fossil fuel and renewable energy sectors via business‐as‐usual and policy option scenarios. The business‐as‐usual assumes that there are not policy instruments mobilized to promote adoption and diffusion of clean technologies instead of a policy scenario where such policies are included. Findings – The results of the analysis show that when the coal‐based resources are integrated in the simulation process, only carbon tax and renewable energy price‐based subsidies promote a transition towards a sustainable energy production, therefore reduce the associated environmental damage. Originality/value – Moreover, the paper also shows that in the case of carbon tax and renewable price subsidies, emission prices should be adequately scrutinized in order to guarantee a positive economic surplus.