GREEN GROWTH: FROM RELIGION TO REALITY - Sustainia

Chapter 317 This, of course, is limited tothe case in which each memberstate had binding targets withouttradeable certificates. In that case,member states could not satisfytheir domestic targets throughpurchases of excess renewableenergy production from abroad.As of 2011, the EU renewableenergy goals permit only limitedtradeability in renewable energy.18 Huberty et al. (2011) analogizeenergy systems transformation toearlier technological transformationslike information and communicationstechnology (ICT). Cognizantof the differences betweenICT and energy, the breakup ofvertically-integrated energy systemsbears some relationship tothe United States government’santitrust actions against the AT&Ttelecom monopoly. In both cases,policy action has attempted to facilitateinnovation on the networkby separating control of the networkfrom control of the devicesand services that operate on it.Whether this will work for energythe way it did for ICT remains tobe seen.19 Note that this will persist evenafter the move to auctioned permits.Auctioning will only controlinitial allocation within memberstates, not between them. Burdensharingwill still govern memberstate quotas under the ETS, andthe member states retain the rightsto use auction revenues howeverthey see fit.lesia in Poland, is of the soft brown ligniteWorld EnergyCouncil (2010) variety, which in addition to its carbonemissions carries a much higher share of other pollutantscompared to the hard coal of earlier generations. Thiswould alienate member states more committed to emissionsand pollution reduction, and frustrate EU attemptsto achieve its commitments under the Kyoto protocols.Furthermore, a renewables target alone would generatesignficant benefits for member states with strongwind and solar power industries. Those countries wouldstand to benefit from increased exports of capital goods,such as wind turbines and solar cells, to other memberstates lacking domestic production capacity.17 But thatwould come at large costs to technology-importingcountries, both in absolute terms and in the secondaryeffects on trade balances.Finally, linkage of security, competitiveness, and climatechange goals was made easier by energy marketreform. Adoption of significant volumes (> 20%) of nonhydroelectricrenewable energy–a cornerstone of energysecurity, emissions reduction, and policy competitiveness–posessignificant challenges to the power grid.Technologically, the intermittency of most renewableenergy sources can destabilize the power grid and lead tosupply disruption. Those problems can be offset throughgrid reinforcements and investments in new technologies.Making those investments, however, would not havebeen in the interest of older, vertically-integrated statepower moonopolies. Their control of both productionand transmission of electricity gave them large incentivesto favor their own energy production assets in makingnew grid investments and allocating grid capacity. As acorollary, it also gave them few incentives to invest innew transmissions connections for renewable energy resources,or to harden the power grid to effectively manageintermittent generation. In this context, the breakupof the power monopolies and the creation of independentmarkets for production, transmission, distribution,and use was a critical step in pushing for the adoption oflow-carbon energy sources.18Thus each policy problem carries with it unique interestsfor and against that would frustrate attempts to pursuethem in isolation. Instead, the EU energy and climatepolicy suite has evolved to yoke progress along any onepolicy dimension to progress along the others. The mixof costs and benefits to any one interest group varies bythe policy instrument, implicitly cross-subsidizing policycompliance. Finally, the ability to pursue all of these policieswas highly contingent on the market reforms thatenabled their implementation.4.2 Political economy as a rebuttal to pricefundamentalismThis analytic framework suggests that the arguments ofthe price fundamentalists miss the forest for the trees. Asemissions policy alone, the ETS may be inefficient andcumbersome compared to a pure carbon price. As energypolicy, the renewable energy mandates crowd out other,cheaper emissions-reducing fuels and efficiency investments.As market policy, energy market liberalizationmakes only partial sense in a world of massive, highlycentralized fossil fuel generation plants.But in practice, the policies manage the tradeoffsbetween each of the three externalities. The renewablesmandate accomplishes four ends: it provides emissionsreduction largely through renewable electricity adoption;it expands domestic renewable energy markets, generatingprofits for firms in renewable energy leaders likeDenmark and Germany; it provides indigenous energysubstitutes not subject to Russian influence; and it shiftsthe cost incidence of emissions reduction from retailelectricity prices to subsidies paid, at least partially, fromgeneral taxation."Thus the renewables mandate solves the security problemsof new energy sources, and generates significantincome for some member states"Absent some means of subsidization, the renewablesmandate might generate opposition among either thoseless concerned with emissions or those net renewableenergy technology importers. But the Emissions TradingScheme, together with reallocated EU StructuralAdjustment Funds, provides a political framework forimplicit cross-subsidization. As Zachmann (2011) hasshown, the new member states–for whom energy securityvia renewables is more expensive than via domesticcoal–receive relatively more permits than they shouldcompared with historic baselines. Conversely, countrieslike Germany and Denmark–who stand to benefit fromthe expansion of the renewable energy market–receiverelatively fewer.19 Since those permits have value on secondarymarkets, this represents an implicit subsidy to thesame member states who are most exposed to the costsof renewables-led emissions reduction. Thus the renewablesmandate solves the security problems of new energysources, and generates significant income for somemember states. But some of that income is recycled viathe ETS permit process, cross-subsidizing energy securityvia renewables rather than domestic coal.Finally, the pursuit of emissions reduction raises concernsabout European competitiveness in the face of highenergy prices. To offset these concerns, both the renewableenergy mandate and the ETS provide compensating incentives.First, renewable energy has become a significantarea of European comparative advantage. Maintenance ofthat advantage will require ongoing innovation. As a rangeof studies have shown, many aspects of energy innovationrespond better to learning by doing than by laboratory or“big science” research alone.(Heymann, 1998; Kamp et al.,2004; Meyer, 2007; Acemoglu et al., 2009) The renewablesmandates, by expanding the market for installation of newtechnology, provide the means for that kind of innovativeactivity. Meanwhile the emphasis on energy technologysupport in the SET-Plan and the Framework Programmesunderpins basic research. Economically, these programsintend, at least, to generate signficant innovation and jobGreen Growth: From religion to reality 27