money & economicsWikipedia2017 · Northern Ireland
A green heating subsidy paid more than fuel cost, so firms burned fuel for profit
In 2017 Northern Ireland's Renewable Heat Incentive paid businesses to switch from coal to renewable heating, typically burning wood pellets. The subsidy per unit of energy was greater than what the fuel cost, so a business could profit simply by burning as much fuel as possible, even heating empty buildings. The scheme was meant to cut emissions but rewarded consumption instead. The political fallout led to the collapse of the Northern Ireland Executive in 2017, and it was not reconvened until 2020. It is a textbook case of a perverse incentive, where a rule produces the opposite of what its designers intended.
It is a clear example of how a badly designed incentive can waste public money, damage trust and bring down a government. Economists use cases like this to think about how rules shape behaviour.
background
The Renewable Heat Incentive (the RHI) is a payment system in England, Scotland and Wales, for the generation of heat from renewable energy sources. Introduced on 28 November 2011, the RHI replaced the Low Carbon Building Programme, which closed in 2010.
The RHI operates in a similar manner to the Feed-in Tariff system, and was introduced through the same legislation - the Energy Act 2008. In the first phase of the RHI cash payments are paid to owners who install renewable heat generation equipment in non-domestic buildings: Commercial RHI.
From Wikipedia: Renewable Heat Incentive (CC BY-SA 4.0) ↗From Wikipedia, the free encyclopedia · text CC BY-SA 4.0
