Determinants of energy subsidies and their impact on technological change of energy use
Diaz Arias, Adriana DOI
10.4233/uuid:059e2707-f6f5-4363-9f16-2a9d656b1b1f Publication date
2018
Document Version Final published version Citation (APA)
Diaz Arias, A. (2018). Determinants of energy subsidies and their impact on technological change of energy use. https://doi.org/10.4233/uuid:059e2707-f6f5-4363-9f16-2a9d656b1b1f
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DETERMINANTS
OF ENERGY
SUBSIDIES AND
THEIR IMPACT ON
TECHNOLOGICAL
CHANGE
OF ENERGY USE
Adriana Diaz Arias
Adriana Diaz Arias • DETERMINANTS OF ENERG Y SUBSIDIES AND THEIR IMP AC T ON TECHNOL OGIC AL CHANGE OF ENERG Y USE
Determinants of energy subsidies and their impact on
technological change of energy use
Adriana Diaz Arias
Determinants of energy subsidies and their impact on
technological change of energy use
Dissertation
for the purpose of obtaining the degree of doctor at Delft University of Technology
by the authority of the Rector Magnificus prof.dr.ir. T.H.J.J. van der Hagen; Chair of the Board for Doctorates
to be defended publicly on Tuesday 5 June 2018 at 10:00 o’clock
by
Adriana Marcela DIAZ ARIAS
Master of Science in Engineering and Policy Analysis, Delft University of Technology, the Netherlands
Determinants of energy subsidies and their impact on
technological change of energy use
Dissertation
for the purpose of obtaining the degree of doctor at Delft University of Technology
by the authority of the Rector Magnificus prof.dr.ir. T.H.J.J. van der Hagen; Chair of the Board for Doctorates
to be defended publicly on Tuesday 5 June 2018 at 10:00 o’clock
by
Adriana Marcela DIAZ ARIAS
Master of Science in Engineering and Policy Analysis, Delft University of Technology, the Netherlands
born in Santa Rosa de Cabal, Colombia
Determinants of energy subsidies and their impact on
technological change of energy use
Dissertation
for the purpose of obtaining the degree of doctor at Delft University of Technology
by the authority of the Rector Magnificus prof.dr.ir. T.H.J.J. van der Hagen; Chair of the Board for Doctorates
to be defended publicly on Tuesday 5 June 2018 at 10:00 o’clock
by
Adriana Marcela DIAZ ARIAS
Master of Science in Engineering and Policy Analysis, Delft University of Technology, the Netherlands
This dissertation has been approved by the promotor: Prof. dr. C.P. van Beers
Composition of the doctoral committee: Rector Magnificus chairperson
Prof. dr. C.P. van Beers Delft University of Technology, promotor
Independent members:
Prof.dr. P.M. Herder Delft University of Technology
Prof. dr. H.L.F. de Groot Vrije Universiteit Amsterdam, The Netherlands Prof. dr. J.C.J.M. van den Bergh Universitat Autònoma de Barcelona, Spain Prof. dr. H.R.J. Vollebergh Tilburg University, The Netherlands
Dr. R. Steenblik Organisation for Economic Co-operation and Development, Paris, France
Prof.dr. G.P. van Wee Delft University of Technology
Cover photo: Onlyyouqj - Freepik.com ISBN 978-94-6295-937-8
This dissertation has been approved by the promotor: Prof. dr. C.P. van Beers
Composition of the doctoral committee: Rector Magnificus chairperson
Prof. dr. C.P. van Beers Delft University of Technology, promotor
Independent members:
Prof.dr. P.M. Herder Delft University of Technology
Prof. dr. H.L.F. de Groot Vrije Universiteit Amsterdam, The Netherlands Prof. dr. J.C.J.M. van den Bergh Universitat Autònoma de Barcelona, Spain Prof. dr. H.R.J. Vollebergh Tilburg University, The Netherlands
Dr. R. Steenblik Organisation for Economic Co-operation and Development, Paris, France
Prof.dr. G.P. van Wee Delft University of Technology
Cover photo: Onlyyouqj - Freepik.com ISBN 978-94-6295-937-8
To Xesc and Elena.
This dissertation has been approved by the promotor: Prof. dr. C.P. van Beers
Composition of the doctoral committee: Rector Magnificus chairperson
Prof. dr. C.P. van Beers Delft University of Technology, promotor
Independent members:
Prof.dr. P.M. Herder Delft University of Technology
Prof. dr. H.L.F. de Groot Vrije Universiteit Amsterdam, The Netherlands Prof. dr. J.C.J.M. van den Bergh Universitat Autònoma de Barcelona, Spain Prof. dr. H.R.J. Vollebergh Tilburg University, The Netherlands
Dr. R. Steenblik Organisation for Economic Co-operation and Development, Paris, France
Prof.dr. G.P. van Wee Delft University of Technology
Cover photo: Onlyyouqj - Freepik.com ISBN 978-94-6295-937-8
This research has been a long and enriching process. It has involved many moments of doubt and then of self-finding and satisfaction. First, I want to thank my promotor Cees van Beers for believing in the relevance of this research topic, for guiding me on the use of methodologies and for always demanding quality beyond mere results. Most of all, I want to thank him for believing in me. I am grateful to the many persons that helped me at TU Delft’s Faculty of Technology and Management. I am thankful to Alfred Kleinknecht and Pauline Herder for listening to my ideas and providing feedback at different points of this research. I benefited from the several discussions about renewable energy innovation and the data analysis work done with Tina Laparidou at the early stage of the PhD. I am very grateful to Nicola Dragui and Servaas Storm for our collaboration in the investigation of energy policies and renewable-energy innovation. I will always remember how much Helen Keasberry, El Arkesteijn-vanSchaik and Eveline Zeegers cared for me during the time I spent at TBM.
I have been very lucky for the friendships built in Delft. A special thanks to my former roomie Rajen and our cat Fidel for all the fun we had in our beautiful apartment in the middle of town; it is remarkable that we also managed to work together and learn to dance salsa. Thank you Pablo, Emiel and Monica for taking care of me when life was less than kind to me and for becoming my family in Europe. Pepijn, Marloes and Vanessa, thank you also for your support and help at so many moments. Thanks to my mum, Bertha and Theo for loving me and reminding me that you are never too old to need your parents and finding them there for you. And to my best friends in Colombia, Eduardo and Juliana, who always trusted that completing this research would become one of my many adventures in Europe.
I deeply appreciate the time that my colleague in Barcelona, Carolina Hollmann took to talk about my research and for her always-to-the-spot suggestions to improve the text and message. I will also be always thankful to Sebastiaan van Herk and Encarni Torres for pushing me to persist and for making sure I would find the time and commitment to finalise this dissertation. A special thanks to Gareth and Laurie for keeping me centred and cheerful during the very final stages of preparing this manuscript.
Resuming this research after very difficult times has only been possible because of
understanding of my beautiful daughter Elena. I am looking forward to catching up with all the trips to the park, school parties and field trips on Saturdays and Sundays to come. I love you both.
ACKNOWLEDGEMENTS
This research has been a long and enriching process. It has involved many moments of doubt and then of self-finding and satisfaction. First, I want to thank my promotor Cees van Beers for believing in the relevance of this research topic, for guiding me on the use of methodologies and for always demanding quality beyond mere results. Most of all, I want to thank him for believing in me. I am grateful to the many persons that helped me at TU Delft’s Faculty of Technology and Management. I am thankful to Alfred Kleinknecht and Pauline Herder for listening to my ideas and providing feedback at different points of this research. I benefited from the several discussions about renewable energy innovation and the data analysis work done with Tina Laparidou at the early stage of the PhD. I am very grateful to Nicola Dragui and Servaas Storm for our collaboration in the investigation of energy policies and renewable-energy innovation. I will always remember how much Helen Keasberry, El Arkesteijn-vanSchaik and Eveline Zeegers cared for me during the time I spent at TBM.
I have been very lucky for the friendships built in Delft. A special thanks to my former roomie Rajen and our cat Fidel for all the fun we had in our beautiful apartment in the middle of town; it is remarkable that we also managed to work together and learn to dance salsa. Thank you Pablo, Emiel and Monica for taking care of me when life was less than kind to me and for becoming my family in Europe. Pepijn, Marloes and Vanessa, thank you also for your support and help at so many moments. Thanks to my mum, Bertha and Theo for loving me and reminding me that you are never too old to need your parents and finding them there for you. And to my best friends in Colombia, Eduardo and Juliana, who always trusted that completing this research would become one of my many adventures in Europe.
I deeply appreciate the time that my colleague in Barcelona, Carolina Hollmann took to talk about my research and for her always-to-the-spot suggestions to improve the text and message. I will also be always thankful to Sebastiaan van Herk and Encarni Torres for pushing me to persist and for making sure I would find the time and commitment to finalise this dissertation. A special thanks to Gareth and Laurie for keeping me centred and cheerful during the very final stages of preparing this manuscript.
Resuming this research after very difficult times has only been possible because of
the support and encouragement of my husband Xesc and for the patience and understanding of my beautiful daughter Elena. I am looking forward to catching up with all the trips to the park, school parties and field trips on Saturdays and Sundays to come. I love you both.
Adriana Diaz Arias
ACKNOWLEDGEMENTS
This research has been a long and enriching process. It has involved many moments of doubt and then of self-finding and satisfaction. First, I want to thank my promotor Cees van Beers for believing in the relevance of this research topic, for guiding me on the use of methodologies and for always demanding quality beyond mere results. Most of all, I want to thank him for believing in me. I am grateful to the many persons that helped me at TU Delft’s Faculty of Technology and Management. I am thankful to Alfred Kleinknecht and Pauline Herder for listening to my ideas and providing feedback at different points of this research. I benefited from the several discussions about renewable energy innovation and the data analysis work done with Tina Laparidou at the early stage of the PhD. I am very grateful to Nicola Dragui and Servaas Storm for our collaboration in the investigation of energy policies and renewable-energy innovation. I will always remember how much Helen Keasberry, El Arkesteijn-vanSchaik and Eveline Zeegers cared for me during the time I spent at TBM.
I have been very lucky for the friendships built in Delft. A special thanks to my former roomie Rajen and our cat Fidel for all the fun we had in our beautiful apartment in the middle of town; it is remarkable that we also managed to work together and learn to dance salsa. Thank you Pablo, Emiel and Monica for taking care of me when life was less than kind to me and for becoming my family in Europe. Pepijn, Marloes and Vanessa, thank you also for your support and help at so many moments. Thanks to my mum, Bertha and Theo for loving me and reminding me that you are never too old to need your parents and finding them there for you. And to my best friends in Colombia, Eduardo and Juliana, who always trusted that completing this research would become one of my many adventures in Europe.
I deeply appreciate the time that my colleague in Barcelona, Carolina Hollmann took to talk about my research and for her always-to-the-spot suggestions to improve the text and message. I will also be always thankful to Sebastiaan van Herk and Encarni Torres for pushing me to persist and for making sure I would find the time and commitment to finalise this dissertation. A special thanks to Gareth and Laurie for keeping me centred and cheerful during the very final stages of preparing this manuscript.
Resuming this research after very difficult times has only been possible because of
the support and encouragement of my husband Xesc and for the patience and understanding of my beautiful daughter Elena. I am looking forward to catching up with all the trips to the park, school parties and field trips on Saturdays and Sundays to come. I love you both.
Table of Contents
SAMENVATTING --- 11
SUMMARY --- 15
Chapter 1: INTRODUCTION --- 17
1.1 Externalities, producer and consumer-subsidies --- 18
1.2 Energy subsidies and political and institutional factors --- 21
1.3 Renewable energy consumption and innovation --- 23
1.4 Research questions --- 26
1.5 Research Method and Design --- 27
1.5.1 Problem Statement --- 28
1.5.2 Institutional and political determinants of fossil fuel energy subsidies --- 29
1.5.3 Impact of renewable energy subsidy policies on technological change in renewable-energy innovations --- 30
1.5.4 Impact of fossil fuel subsidies on renewable energy innovations --- 31
References --- 33
Chapter 2: ENVIRONMENTALLY HARMFUL SUBSIDIES IN THE ENERGY SECTOR --- 37
2.1 Introduction --- 38
2.2 Environmentally harmful government policies: definition and taxonomy --- 40
2.3 Costs of subsidies with environmental effects --- 44
2.3.1 Costs of environmentally harmful subsidies --- 44
2.3.2 Environmental effect of subsidies --- 48
2.4 Technological lock-in effects of energy systems --- 49
2.5 Economic, political and institutional barriers --- 52
2.6 Conclusions --- 53
Chapter 3: POLITICAL DETERMINANTS OF CONSUMERS’ FOSSIL FUEL ENERGY SUBSIDIES --- 61
3.1 Introduction --- 62
3.2 Background --- 64
3.2.1 Targeted and non-targeted public spending --- 64
3.2.2. Political institutions and participating mechanisms --- 66
3.3 Empirical Model and Data --- 68
3.3.1 Empirical Model --- 68
3.3.2 Data --- 72
3.4 Data analysis and discussion --- 74
3.5 Conclusions --- 82
Appendix 3.1 --- 85
References --- 86
Chapter 4: THE SIZE OF TECHNOLOGY-PUSH AND DEMAND-PULL EFFECTS ON WIND ENERGY INNOVATION: A META-ANALYSIS AND META-REGRESSION ANALYSIS --- 89
4.1 Introduction --- 90
4.2 Directed technological change and renewable energy --- 92
4.3 Methodology --- 95
4.3.1 Data collection --- 96
4.3.2 Data treatment and computation of effect sizes --- 99
4.4 Meta-analyses and meta-regression-analyses --- 101
4.5 Conclusions --- 107
Appendix 4.1 --- 109
References --- 115
Chapter 5: ENERGY SUBSIDIES, STRUCTURE OF ELECTRICITY PRICES AND TECHNOLOGICAL CHANGE OF ENERGY USE --- 119
Table of Contents
SAMENVATTING --- 11
SUMMARY --- 15
Chapter 1: INTRODUCTION --- 17
1.1 Externalities, producer and consumer-subsidies --- 18
1.2 Energy subsidies and political and institutional factors --- 21
1.3 Renewable energy consumption and innovation --- 23
1.4 Research questions --- 26
1.5 Research Method and Design --- 27
1.5.1 Problem Statement --- 28
1.5.2 Institutional and political determinants of fossil fuel energy subsidies --- 29
1.5.3 Impact of renewable energy subsidy policies on technological change in renewable-energy innovations --- 30
1.5.4 Impact of fossil fuel subsidies on renewable energy innovations --- 31
References --- 33
Chapter 2: ENVIRONMENTALLY HARMFUL SUBSIDIES IN THE ENERGY SECTOR --- 37
2.1 Introduction --- 38
2.2 Environmentally harmful government policies: definition and taxonomy --- 40
2.3 Costs of subsidies with environmental effects --- 44
2.3.1 Costs of environmentally harmful subsidies --- 44
2.3.2 Environmental effect of subsidies --- 48
2.4 Technological lock-in effects of energy systems --- 49
2.5 Economic, political and institutional barriers --- 52
2.6 Conclusions --- 53
References --- 56
Chapter 3: POLITICAL DETERMINANTS OF CONSUMERS’ FOSSIL FUEL ENERGY SUBSIDIES --- 61
3.1 Introduction --- 62
3.2 Background --- 64
3.2.1 Targeted and non-targeted public spending --- 64
3.2.2. Political institutions and participating mechanisms --- 66
3.3 Empirical Model and Data --- 68
3.3.1 Empirical Model --- 68
3.3.2 Data --- 72
3.4 Data analysis and discussion --- 74
3.5 Conclusions --- 82
Appendix 3.1 --- 85
References --- 86
Chapter 4: THE SIZE OF TECHNOLOGY-PUSH AND DEMAND-PULL EFFECTS ON WIND ENERGY INNOVATION: A META-ANALYSIS AND META-REGRESSION ANALYSIS --- 89
4.1 Introduction --- 90
4.2 Directed technological change and renewable energy --- 92
4.3 Methodology --- 95
4.3.1 Data collection --- 96
4.3.2 Data treatment and computation of effect sizes --- 99
4.4 Meta-analyses and meta-regression-analyses --- 101
4.5 Conclusions --- 107
Appendix 4.1 --- 109
References --- 115
Chapter 5: ENERGY SUBSIDIES, STRUCTURE OF ELECTRICITY PRICES AND TECHNOLOGICAL CHANGE OF ENERGY USE --- 119
Table of Contents
SAMENVATTING --- 11SUMMARY --- 15
Chapter 1: INTRODUCTION --- 17
1.1 Externalities, producer and consumer-subsidies --- 18
1.2 Energy subsidies and political and institutional factors --- 21
1.3 Renewable energy consumption and innovation --- 23
1.4 Research questions --- 26
1.5 Research Method and Design --- 27
1.5.1 Problem Statement --- 28
1.5.2 Institutional and political determinants of fossil fuel energy subsidies --- 29
1.5.3 Impact of renewable energy subsidy policies on technological change in renewable-energy innovations --- 30
1.5.4 Impact of fossil fuel subsidies on renewable energy innovations --- 31
References --- 33
Chapter 2: ENVIRONMENTALLY HARMFUL SUBSIDIES IN THE ENERGY SECTOR --- 37
2.1 Introduction --- 38
2.2 Environmentally harmful government policies: definition and taxonomy --- 40
2.3 Costs of subsidies with environmental effects --- 44
2.3.1 Costs of environmentally harmful subsidies --- 44
2.3.2 Environmental effect of subsidies --- 48
2.4 Technological lock-in effects of energy systems --- 49
2.5 Economic, political and institutional barriers --- 52
2.6 Conclusions --- 53
References --- 56
Chapter 3: POLITICAL DETERMINANTS OF CONSUMERS’ FOSSIL FUEL ENERGY SUBSIDIES --- 61
3.1 Introduction --- 62
3.2 Background --- 64
3.2.1 Targeted and non-targeted public spending --- 64
3.2.2. Political institutions and participating mechanisms --- 66
3.3 Empirical Model and Data --- 68
3.3.1 Empirical Model --- 68
3.3.2 Data --- 72
3.4 Data analysis and discussion --- 74
3.5 Conclusions --- 82
Appendix 3.1 --- 85
References --- 86
Chapter 4: THE SIZE OF TECHNOLOGY-PUSH AND DEMAND-PULL EFFECTS ON WIND ENERGY INNOVATION: A META-ANALYSIS AND META-REGRESSION ANALYSIS --- 89
4.1 Introduction --- 90
4.2 Directed technological change and renewable energy --- 92
4.3 Methodology --- 95
4.3.1 Data collection --- 96
4.3.2 Data treatment and computation of effect sizes --- 99
4.4 Meta-analyses and meta-regression-analyses --- 101
4.5 Conclusions --- 107
Appendix 4.1 --- 109
References --- 115
Chapter 5: ENERGY SUBSIDIES, STRUCTURE OF ELECTRICITY PRICES AND TECHNOLOGICAL CHANGE OF ENERGY USE --- 119
5.2 Differential energy prices and technological change --- 121
5.2.1 Differential energy prices --- 121
5.2.2 Technological change --- 123
5.3 Model and data --- 126
5.3.1 The model --- 126
5.3.2 Data --- 128
5.4 Econometric results --- 133
5.5 Conclusions --- 136
Appendix 5.1: IPCs of renewable energy technologies --- 137
References --- 139
Chapter 6: CONCLUSIONS--- 143
6.1 Background and research questions --- 143
6.2 Problem Statement --- 144
6.3 Conclusions form chapters 3 - 5 --- 144
6.3.1 Institutional and political determinants of energy subsidies --- 144
6.3.2 Impact of renewable energy subsidies on technological change in renewable-energy innovations --- 146
6.3.3 Impact of fossil fuel subsidies on renewable energy innovations --- 147
6.4 Policy recommendations --- 148
5.1 Introduction --- 120
5.2 Differential energy prices and technological change --- 121
5.2.1 Differential energy prices --- 121
5.2.2 Technological change --- 123
5.3 Model and data --- 126
5.3.1 The model --- 126
5.3.2 Data --- 128
5.4 Econometric results --- 133
5.5 Conclusions --- 136
Appendix 5.1: IPCs of renewable energy technologies --- 137
References --- 139
Chapter 6: CONCLUSIONS--- 143
6.1 Background and research questions --- 143
6.2 Problem Statement --- 144
6.3 Conclusions form chapters 3 - 5 --- 144
6.3.1 Institutional and political determinants of energy subsidies --- 144
6.3.2 Impact of renewable energy subsidies on technological change in renewable-energy innovations --- 146
6.3.3 Impact of fossil fuel subsidies on renewable energy innovations --- 147
6.4 Policy recommendations --- 148
6.5 Future research --- 149
5.1 Introduction --- 120
5.2 Differential energy prices and technological change --- 121
5.2.1 Differential energy prices --- 121
5.2.2 Technological change --- 123
5.3 Model and data --- 126
5.3.1 The model --- 126
5.3.2 Data --- 128
5.4 Econometric results --- 133
5.5 Conclusions --- 136
Appendix 5.1: IPCs of renewable energy technologies --- 137
References --- 139
Chapter 6: CONCLUSIONS--- 143
6.1 Background and research questions --- 143
6.2 Problem Statement --- 144
6.3 Conclusions form chapters 3 - 5 --- 144
6.3.1 institutional and political determinants of energy subsidies --- 144
6.3.2 Impact of renewable energy subsidies on technological change in renewable-energy innovations --- 146
6.3.3 Impact of fossil fuel subsidies on renewable energy innovations --- 147
6.4 Policy recommendations --- 148
6.5 Future research --- 149
SAMENVATTING
Overheden richten zich in toenemende mate op de vermindering van negatieve effecten die economische activiteiten op het milieu uitoefenen. Internationale akkoorden voor het verminderen van de uitstoot van broeikasgassen en de zorg over stijgende prijzen voor fossiele brandstoffen hebben in de afgelopen decennia geleid tot een breed pallet aan beleidsmaatregelen gericht op duurzame energie. Echter, tegelijkertijd worden jaarlijks nog altijd miljarden euro’s uit publieke middelen besteed aan subsidies die de productiekosten en gebruikerstarieven van fossiele brandstoffen verlagen.
Deze dissertatie richt zich op energiesubsidies aan consumenten of eindgebruikers, hun hardnekkigheid ten gevolge van institutionele en politieke belemmeringen en hoe zij invloed uitoefenen op de technologische vooruitgang van duurzame energie. Het concept van energiesubsidies, en de wijze waarop deze energieverbruik en de potentiële voordelen van hervormingen van het stelsel van energiesubsidies beïnvloeden, worden geïntroduceerd in Hoofdstuk 1.
In Hoofdstuk 2 wordt het onderzoekontwerp voor de empirische analyses in de hoofdstukken 3, 4 en 5 behandeld. Subsidies op het gebruik van fossiele brandstoffen komen voor in verschillende vormen zoals bijvoorbeeld fiscale subsidies, publieke voorziening van goederen, maar ook aanbod onder kostprijs, volume regulering en handelsmaatregelen. Naar schatting tellen de wereldwijde subsidies op fossiele brandstoffen voor eindgebruikers op tot US$548 miljard dollar (in 2013); dit is 0.7% van het wereldwijde bruto nationaal product. Vanuit het perspectief van milieuschade kan de totale CO2-uitstoot met ongeveer 5% worden verlaagd wanneer de subsidies op fossiele brandstoffen zouden worden afgeschaft. Behalve de kosten die subsidies op fossiele brandstoffen met zich meebrengen voor economie en milieu creëren zij ook een lock-in effect voor energiesystemen gebaseerd op fossiele brandstoffen vanwege toenemende voordelen voor investeringen en padafhankelijkheden. Hierbij kan worden gedacht aan schaalvoordelen, leereffecten, adaptieve verwachtingen en netwerkvoordelen.
In hoofdstuk 3 worden politieke en institutionele factoren verkend die overheden belemmeren om subsidies op fossiele brandstoffen te hervormen. Hiervoor wordt gebruik gemaakt van panel data en dwarsdoorsnede of cross-sectie
11 11
periode van 1990 tot 2012. De resultaten tonen aan dat de omvang van niet-gerichte publieke voorzieningen gemeten via uitgaven aan volksgezondheid en de mate waarin burgers zich gehoord voelen ten aanzien van overheidsbeleid negatief correleren met subsidies op fossiele brandstoffen voor consumenten. Concentratie van macht heeft het tegenovergestelde effect. De cross-sectie modellen laten zien dat landen met een grotere inkomensongelijkheidsindex meer subsidies op het gebruik van fossiele brandstoffen hebben.
Hoofdstuk 4 richt zich op de invloed van subsidies op duurzame energie technologieën en op de technologische veranderingen die deze teweegbrengen. Een meta-analyse van de bestaande empirische literatuur over de effecten van energiebeleid op innovatie in windenergie, toont aan dat maatregelen die er op zijn gericht om de innovaties winstgevender te maken (vraag gestuurde innovatie) een iets groter effect hebben op het aantal patentaanvragen op het gebied van windenergie dan maatregelen die zijn gericht op het verminderen van de innovatiekosten (technologie gedreven innovatie). De heterogeniteit in de effecten van technologie gedreven innovatiebeleid in de empirische literatuur, kan worden verklaard door de keuze van het patent systeem en het aantal jaren in de empirische studies die zijn gebruikt. Voor wat betreft de effecten van vraag gestuurd innovatiebeleid, kunnen de verschillen in de effectomvang tussen studies worden verklaard door de opname van meerdere gelijksoortige variabelen in de regressies. Het kleine aantal studies is een beperking voor de meta-analyse. Niettemin wijzen de uitkomsten van de meta analyse er op dat windenergie technologieën een stadium hebben bereikt waar beleidsmaatregelen om duurzame energie aantrekkelijker te maken een sterker stimulerend effect hebben op de innovatie dan recentere technologische ontwikkelingen die meer afhankelijk zijn van publieke investeringen in onderzoek en ontwikkeling.
Hoofdstuk 5 gaat in op de twee onderzoeksvelden die de basis vormen voor deze dissertatie, door het verbinden van de focus van milieu-economie op de relevante factoren voor overgang naar een groene energievoorziening enerzijds en het effect van het energiesubsidiebeleid van overheden anderzijds. Panel data van 20 geïndustrialiseerde landen over de periode van 1990 tot en met 2006 zijn gebruikt om
volledig duurzame energie technologieën, (2) in windenergie, en (3) in zonne-energie empirisch te toetsen. In vrijwel elk land betalen grote industriële energiegebruikers lagere electriciteitsprijzen dan huishoudens en het midden- en kleinbedrijf, als gevolg van overheidssubsidiebeleid. De empirische bevindingen laten zien dat het afbouwen van energiesubsidies aan grootverbruikers van energie een duidelijke prikkel geeft voor ontwikkeling van duurzame energie technologieën, met name op het gebied van zonne-energie waar lock-in barrières als gevolg van bijvoorbeeld de inflexibiliteit van het elektriciteitsnet bijna geen rol speelt. Politieke en institutionele krachten houden energiesubsidies in stand die niet alleen hoge kosten voor economie en milieu tot gevolg hebben, maar die ook de door overheden gewenste groene energie innovatie belemmeren.
12 12
data gebaseerd op data van reguliere benzine- en dieselsubsidies in 194 landen in de periode van 1990 tot 2012. De resultaten tonen aan dat de omvang van niet-gerichte publieke voorzieningen gemeten via uitgaven aan volksgezondheid en de mate waarin burgers zich gehoord voelen ten aanzien van overheidsbeleid negatief correleren met subsidies op fossiele brandstoffen voor consumenten. Concentratie van macht heeft het tegenovergestelde effect. De cross-sectie modellen laten zien dat landen met een grotere inkomensongelijkheidsindex meer subsidies op het gebruik van fossiele brandstoffen hebben.
Hoofdstuk 4 richt zich op de invloed van subsidies op duurzame energie technologieën en op de technologische veranderingen die deze teweegbrengen. Een meta-analyse van de bestaande empirische literatuur over de effecten van energiebeleid op innovatie in windenergie, toont aan dat maatregelen die er op zijn gericht om de innovaties winstgevender te maken (vraag gestuurde innovatie) een iets groter effect hebben op het aantal patentaanvragen op het gebied van windenergie dan maatregelen die zijn gericht op het verminderen van de innovatiekosten (technologie gedreven innovatie). De heterogeniteit in de effecten van technologie gedreven innovatiebeleid in de empirische literatuur, kan worden verklaard door de keuze van het patent systeem en het aantal jaren in de empirische studies die zijn gebruikt. Voor wat betreft de effecten van vraag gestuurd innovatiebeleid, kunnen de verschillen in de effectomvang tussen studies worden verklaard door de opname van meerdere gelijksoortige variabelen in de regressies. Het kleine aantal studies is een beperking voor de meta-analyse. Niettemin wijzen de uitkomsten van de meta analyse er op dat windenergie technologieën een stadium hebben bereikt waar beleidsmaatregelen om duurzame energie aantrekkelijker te maken een sterker stimulerend effect hebben op de innovatie dan recentere technologische ontwikkelingen die meer afhankelijk zijn van publieke investeringen in onderzoek en ontwikkeling.
Hoofdstuk 5 gaat in op de twee onderzoeksvelden die de basis vormen voor deze dissertatie, door het verbinden van de focus van milieu-economie op de relevante factoren voor overgang naar een groene energievoorziening enerzijds en het effect van het energiesubsidiebeleid van overheden anderzijds. Panel data van 20 geïndustrialiseerde landen over de periode van 1990 tot en met 2006 zijn gebruikt om
de effecten van de prijsstructuur van elektriciteit op het aantal patenten (1) voor volledig duurzame energie technologieën, (2) in windenergie, en (3) in zonne-energie empirisch te toetsen. In vrijwel elk land betalen grote industriële energiegebruikers lagere electriciteitsprijzen dan huishoudens en het midden- en kleinbedrijf, als gevolg van overheidssubsidiebeleid. De empirische bevindingen laten zien dat het afbouwen van energiesubsidies aan grootverbruikers van energie een duidelijke prikkel geeft voor ontwikkeling van duurzame energie technologieën, met name op het gebied van zonne-energie waar lock-in barrières als gevolg van bijvoorbeeld de inflexibiliteit van het elektriciteitsnet bijna geen rol speelt. Politieke en institutionele krachten houden energiesubsidies in stand die niet alleen hoge kosten voor economie en milieu tot gevolg hebben, maar die ook de door overheden gewenste groene energie innovatie belemmeren.
12
data gebaseerd op data van reguliere benzine- en dieselsubsidies in 194 landen in de periode van 1990 tot 2012. De resultaten tonen aan dat de omvang van niet-gerichte publieke voorzieningen gemeten via uitgaven aan volksgezondheid en de mate waarin burgers zich gehoord voelen ten aanzien van overheidsbeleid negatief correleren met subsidies op fossiele brandstoffen voor consumenten. Concentratie van macht heeft het tegenovergestelde effect. De cross-sectie modellen laten zien dat landen met een grotere inkomensongelijkheidsindex meer subsidies op het gebruik van fossiele brandstoffen hebben.
Hoofdstuk 4 richt zich op de invloed van subsidies op duurzame energie technologieën en op de technologische veranderingen die deze teweegbrengen. Een meta-analyse van de bestaande empirische literatuur over de effecten van energiebeleid op innovatie in windenergie, toont aan dat maatregelen die er op zijn gericht om de innovaties winstgevender te maken (vraag gestuurde innovatie) een iets groter effect hebben op het aantal patentaanvragen op het gebied van windenergie dan maatregelen die zijn gericht op het verminderen van de innovatiekosten (technologie gedreven innovatie). De heterogeniteit in de effecten van technologie gedreven innovatiebeleid in de empirische literatuur, kan worden verklaard door de keuze van het patent systeem en het aantal jaren in de empirische studies die zijn gebruikt. Voor wat betreft de effecten van vraag gestuurd innovatiebeleid, kunnen de verschillen in de effectomvang tussen studies worden verklaard door de opname van meerdere gelijksoortige variabelen in de regressies. Het kleine aantal studies is een beperking voor de meta-analyse. Niettemin wijzen de uitkomsten van de meta analyse er op dat windenergie technologieën een stadium hebben bereikt waar beleidsmaatregelen om duurzame energie aantrekkelijker te maken een sterker stimulerend effect hebben op de innovatie dan recentere technologische ontwikkelingen die meer afhankelijk zijn van publieke investeringen in onderzoek en ontwikkeling.
Hoofdstuk 5 gaat in op de twee onderzoeksvelden die de basis vormen voor deze dissertatie, door het verbinden van de focus van milieu-economie op de relevante factoren voor overgang naar een groene energievoorziening enerzijds en het effect van het energiesubsidiebeleid van overheden anderzijds. Panel data van 20 geïndustrialiseerde landen over de periode van 1990 tot en met 2006 zijn gebruikt om
de effecten van de prijsstructuur van elektriciteit op het aantal patenten (1) voor volledig duurzame energie technologieën, (2) in windenergie, en (3) in zonne-energie empirisch te toetsen. In vrijwel elk land betalen grote industriële energiegebruikers lagere electriciteitsprijzen dan huishoudens en het midden- en kleinbedrijf, als gevolg van overheidssubsidiebeleid. De empirische bevindingen laten zien dat het afbouwen van energiesubsidies aan grootverbruikers van energie een duidelijke prikkel geeft voor ontwikkeling van duurzame energie technologieën, met name op het gebied van zonne-energie waar lock-in barrières als gevolg van bijvoorbeeld de inflexibiliteit van het elektriciteitsnet bijna geen rol speelt. Politieke en institutionele krachten houden energiesubsidies in stand die niet alleen hoge kosten voor economie en milieu tot gevolg hebben, maar die ook de door overheden gewenste groene energie innovatie belemmeren.
13 13
Governments are increasingly committed to tackling the negative impacts of economic activity on the natural environment. Over the last decades, international agreements to cut greenhouse gas emissions, plus concerns over the rising prices of fossil fuels, have led to the introduction of a wide range of renewable energy policies. Yet, fossil fuels continue to benefit from billions of euros each year in the form of government subsidies that lower their production costs, or the prices paid by end-users.
This thesis investigates consumer or end-user energy subsidies, their persistence due to institutional and political barriers, and how they affect the technological advancement of renewable energy. The concept of energy subsidies, the effects they have on energy consumption and the potential gains to come from reform are introduced in the first chapter. Chapter 2 provides the framework for the empirical analyses of chapters 3, 4 and 5. Fossil fuel subsidies can take different forms e.g. tax subsidies, public provisions of goods and supplies below cost prices, volume regulations. Estimates of fossil fuel subsidies to end-users worldwide amount to US$548 billion (in 2013); this is equivalent to 0.7% of the global gross domestic product. In terms of environmental costs, it is estimated that approximately 5% of carbon emissions could be reduced only by removing fossil fuel subsidies. Beyond their economic and environmental costs, fossil fuel subsidies create lock-in to carbon-based energy systems that result from increasing returns and path dependencies i.e. scale economies, learning effects, adaptive expectations and network economies.
Chapter 3 investigates the political and institutional factors that impede nations to reform these policies. Panel data and cross sectional econometric estimations are presented based on a set of regular gasoline and diesel subsidies in 194 countries during the period 1990-2012. The results show that the supply of untargeted public goods (e.g. public health expenditures) and the ability of citizens to be heard by their government correlate with lower fossil fuel consumption subsidies. Power concentration has the opposite effect. The cross-sectional models reveal that more subsidies to fossil fuels are provided in countries with larger income inequality indexes.
Chapter 4 examines the impact of subsidies for renewable energy technologies 14
SUMMARY
Governments are increasingly committed to tackling the negative impacts of economic activity on the natural environment. Over the last decades, international agreements to cut greenhouse gas emissions, plus concerns over the rising prices of fossil fuels, have led to the introduction of a wide range of renewable energy policies. Yet, fossil fuels continue to benefit from billions of euros each year in the form of government subsidies that lower their production costs, or the prices paid by end-users.
This thesis investigates consumer or end-user energy subsidies, their persistence due to institutional and political barriers, and how they affect the technological advancement of renewable energy. The concept of energy subsidies, the effects they have on energy consumption and the potential gains to come from reform are introduced in the first chapter. Chapter 2 provides the framework for the empirical analyses of chapters 3, 4 and 5. Fossil fuel subsidies can take different forms e.g. tax subsidies, public provisions of goods and supplies below cost prices, volume regulations. Estimates of fossil fuel subsidies to end-users worldwide amount to US$548 billion (in 2013); this is equivalent to 0.7% of the global gross domestic product. In terms of environmental costs, it is estimated that approximately 5% of carbon emissions could be reduced only by removing fossil fuel subsidies. Beyond their economic and environmental costs, fossil fuel subsidies create lock-in to carbon-based energy systems that result from increasing returns and path dependencies i.e. scale economies, learning effects, adaptive expectations and network economies.
Chapter 3 investigates the political and institutional factors that impede nations to reform these policies. Panel data and cross sectional econometric estimations are presented based on a set of regular gasoline and diesel subsidies in 194 countries during the period 1990-2012. The results show that the supply of untargeted public goods (e.g. public health expenditures) and the ability of citizens to be heard by their government correlate with lower fossil fuel consumption subsidies. Power concentration has the opposite effect. The cross-sectional models reveal that more subsidies to fossil fuels are provided in countries with larger income inequality indexes.
Chapter 4 examines the impact of subsidies for renewable energy technologies 14
SUMMARY
Governments are increasingly committed to tackling the negative impacts of economic activity on the natural environment. Over the last decades, international agreements to cut greenhouse gas emissions, plus concerns over the rising prices of fossil fuels, have led to the introduction of a wide range of renewable energy policies. Yet, fossil fuels continue to benefit from billions of euros each year in the form of government subsidies that lower their production costs, or the prices paid by end-users.
This thesis investigates consumer or end-user energy subsidies, their persistence due to institutional and political barriers, and how they affect the technological advancement of renewable energy. The concept of energy subsidies, the effects they have on energy consumption and the potential gains to come from reform are introduced in the first chapter. Chapter 2 provides the framework for the empirical analyses of chapters 3, 4 and 5. Fossil fuel subsidies can take different forms e.g. tax subsidies, public provisions of goods and supplies below cost prices, volume regulations. Estimates of fossil fuel subsidies to end-users worldwide amount to US$548 billion (in 2013); this is equivalent to 0.7% of the global gross domestic product. In terms of environmental costs, it is estimated that approximately 5% of carbon emissions could be reduced only by removing fossil fuel subsidies. Beyond their economic and environmental costs, fossil fuel subsidies create lock-in to carbon-based energy systems that result from increasing returns and path dependencies i.e. scale economies, learning effects, adaptive expectations and network economies.
Chapter 3 investigates the political and institutional factors that impede nations to reform these policies. Panel data and cross sectional econometric estimations are presented based on a set of regular gasoline and diesel subsidies in 194 countries during the period 1990-2012. The results show that the supply of untargeted public goods (e.g. public health expenditures) and the ability of citizens to be heard by their government correlate with lower fossil fuel consumption subsidies. Power concentration has the opposite effect. The cross-sectional models reveal that more subsidies to fossil fuels are provided in countries with larger income inequality indexes.
Chapter 4 examines the impact of subsidies for renewable energy technologies 15 15
the effects of energy policy on wind energy innovation shows that policies seeking to make innovation more profitable, i.e. demand-pull policies, have had a slightly larger impact on the number of patent applications in the field of wind energy than policies oriented to reduce the cost of innovation, i.e. technology-push policies. The heterogeneity of the effects of technology-push policies in the empirical literature can be explained by the choice of patent system of the authors and the number of years covered by the data sets in the studies. In the case of demand-pull policies, the between-study variance of effect sizes comes from the inclusion of more than one variable of this type in the study’s regressions. The small number of existing studies is a limitation of the meta-analysis, yet the results are revealing of wind energy technology reaching a stage in which policies that make renewable energies more attractive have a stronger effect in driving innovation in contrast with younger technologies that are more reliant on public spending in research and development.
Chapter 5 operates on the two fields of research of this thesis, linking the interest of environmental economics to the determinants of green technological change and the impacts of government policies aiming at subsidising energy. A panel data set of 20 industrialised countries over the period 1990-2006 is used to investigate empirically the effect of the price structure of electricity on the number of patents in 1) all renewable energy technologies, 2) in wind energy, and 3) in solar power. In nearly all countries, industrial energy users pay less than households and small businesses due to government subsidy policies. The empirical results show that reducing government support to large energy users provides a clear incentive to increase inventions in renewable energy technologies, particularly in solar power, which does not experience lock-in barriers due to grid inflexibility. Political and institutional forces maintain energy subsidies in place that not only have huge economic and environmental costs but also affect negatively the green energy innovation that governments want to stimulate.
This thesis investigates the determinants of energy subsidies and their impacts on the technological change of energy use. Every year governments spend billions of dollars subsidising energy production and consumption for different reasons: In developed economies, for example, energy subsidies seek to secure present and future energy supply, protect the environment or stimulate particular sectors of the economy (EEA, 2004). In developing countries, energy subsidies are introduced to alleviate energy poverty of low-income groups; and, in energy exporting countries, energy subsidies seek to redistribute national resource wealth (IEA, 2010). The effects of energy subsidies on the economy and the environment are, regardless of their purpose, large and often come with several drawbacks.
This thesis addresses the effects that subsidies to different energy sources have on the economy, the environment and the technological advancement of renewable energy technologies. It starts from the analysis of the role of political and institutional characteristics in maintaining energy subsidies implemented by different governments, focusing on fossil fuel subsidies in the transport sector. The political and institutional factors behind these policies the adoption of a strategy oriented towards renewable energy.
But subsidies and their impact on prices may not only have a “static” effect on energy consumption. This study also addresses their influence on the path of energy technological innovation, particularly in the sector of renewable energy sources (mainly solar and wind energy).
These topics mark the three main contributions of this thesis: i) an analysis of the role of institutions in sustaining environmentally harmful energy subsidies; ii) an analysis of how renewable and fossil-fuel energy subsidies affect the technological change of renewable energy technologies; and iii) an analysis linking the institutional determinants of energy subsidies with the pace of technological innovation in the renewable energy sector, i.e. a political economy analysis of technical change oriented towards renewable-energy consumption.
This introductory chapter is structured as follows. The first part presents a simple and schematic approach to examine the need and effects of government subsidies on energy prices and energy consumption. This sets the framework for 16
on their technological change. A meta-analysis of the existing empirical literature on the effects of energy policy on wind energy innovation shows that policies seeking to make innovation more profitable, i.e. demand-pull policies, have had a slightly larger impact on the number of patent applications in the field of wind energy than policies oriented to reduce the cost of innovation, i.e. technology-push policies. The heterogeneity of the effects of technology-push policies in the empirical literature can be explained by the choice of patent system of the authors and the number of years covered by the data sets in the studies. In the case of demand-pull policies, the between-study variance of effect sizes comes from the inclusion of more than one variable of this type in the study’s regressions. The small number of existing studies is a limitation of the meta-analysis, yet the results are revealing of wind energy technology reaching a stage in which policies that make renewable energies more attractive have a stronger effect in driving innovation in contrast with younger technologies that are more reliant on public spending in research and development.
Chapter 5 operates on the two fields of research of this thesis, linking the interest of environmental economics to the determinants of green technological change and the impacts of government policies aiming at subsidising energy. A panel data set of 20 industrialised countries over the period 1990-2006 is used to investigate empirically the effect of the price structure of electricity on the number of patents in 1) all renewable energy technologies, 2) in wind energy, and 3) in solar power. In nearly all countries, industrial energy users pay less than households and small businesses due to government subsidy policies. The empirical results show that reducing government support to large energy users provides a clear incentive to increase inventions in renewable energy technologies, particularly in solar power, which does not experience lock-in barriers due to grid inflexibility. Political and institutional forces maintain energy subsidies in place that not only have huge economic and environmental costs but also affect negatively the green energy innovation that governments want to stimulate.
Chapter 1: INTRODUCTION
This thesis investigates the determinants of energy subsidies and their impacts on the technological change of energy use. Every year governments spend billions of dollars subsidising energy production and consumption for different reasons: In developed economies, for example, energy subsidies seek to secure present and future energy supply, protect the environment or stimulate particular sectors of the economy (EEA, 2004). In developing countries, energy subsidies are introduced to alleviate energy poverty of low-income groups; and, in energy exporting countries, energy subsidies seek to redistribute national resource wealth (IEA, 2010). The effects of energy subsidies on the economy and the environment are, regardless of their purpose, large and often come with several drawbacks.
This thesis addresses the effects that subsidies to different energy sources have on the economy, the environment and the technological advancement of renewable energy technologies. It starts from the analysis of the role of political and institutional characteristics in maintaining energy subsidies implemented by different governments, focusing on fossil fuel subsidies in the transport sector. The political and institutional factors behind these policies the adoption of a strategy oriented towards renewable energy.
But subsidies and their impact on prices may not only have a “static” effect on energy consumption. This study also addresses their influence on the path of energy technological innovation, particularly in the sector of renewable energy sources (mainly solar and wind energy).
These topics mark the three main contributions of this thesis: i) an analysis of the role of institutions in sustaining environmentally harmful energy subsidies; ii) an analysis of how renewable and fossil-fuel energy subsidies affect the technological change of renewable energy technologies; and iii) an analysis linking the institutional determinants of energy subsidies with the pace of technological innovation in the renewable energy sector, i.e. a political economy analysis of technical change oriented towards renewable-energy consumption.
This introductory chapter is structured as follows. The first part presents a simple and schematic approach to examine the need and effects of government subsidies on energy prices and energy consumption. This sets the framework for 16
on their technological change. A meta-analysis of the existing empirical literature on the effects of energy policy on wind energy innovation shows that policies seeking to make innovation more profitable, i.e. demand-pull policies, have had a slightly larger impact on the number of patent applications in the field of wind energy than policies oriented to reduce the cost of innovation, i.e. technology-push policies. The heterogeneity of the effects of technology-push policies in the empirical literature can be explained by the choice of patent system of the authors and the number of years covered by the data sets in the studies. In the case of demand-pull policies, the between-study variance of effect sizes comes from the inclusion of more than one variable of this type in the study’s regressions. The small number of existing studies is a limitation of the meta-analysis, yet the results are revealing of wind energy technology reaching a stage in which policies that make renewable energies more attractive have a stronger effect in driving innovation in contrast with younger technologies that are more reliant on public spending in research and development.
Chapter 5 operates on the two fields of research of this thesis, linking the interest of environmental economics to the determinants of green technological change and the impacts of government policies aiming at subsidising energy. A panel data set of 20 industrialised countries over the period 1990-2006 is used to investigate empirically the effect of the price structure of electricity on the number of patents in 1) all renewable energy technologies, 2) in wind energy, and 3) in solar power. In nearly all countries, industrial energy users pay less than households and small businesses due to government subsidy policies. The empirical results show that reducing government support to large energy users provides a clear incentive to increase inventions in renewable energy technologies, particularly in solar power, which does not experience lock-in barriers due to grid inflexibility. Political and institutional forces maintain energy subsidies in place that not only have huge economic and environmental costs but also affect negatively the green energy innovation that governments want to stimulate.
Chapter 1: INTRODUCTION
This thesis investigates the determinants of energy subsidies and their impacts on the technological change of energy use. Every year governments spend billions of dollars subsidising energy production and consumption for different reasons: In developed economies, for example, energy subsidies seek to secure present and future energy supply, protect the environment or stimulate particular sectors of the economy (EEA, 2004). In developing countries, energy subsidies are introduced to alleviate energy poverty of low-income groups; and, in energy exporting countries, energy subsidies seek to redistribute national resource wealth (IEA, 2010). The effects of energy subsidies on the economy and the environment are, regardless of their purpose, large and often come with several drawbacks.
This thesis addresses the effects that subsidies to different energy sources have on the economy, the environment and the technological advancement of renewable energy technologies. It starts from the analysis of the role of political and institutional characteristics in maintaining energy subsidies implemented by different governments, focusing on fossil fuel subsidies in the transport sector. The political and institutional factors behind these policies the adoption of a strategy oriented towards renewable energy.
But subsidies and their impact on prices may not only have a “static” effect on energy consumption. This study also addresses their influence on the path of energy technological innovation, particularly in the sector of renewable energy sources (mainly solar and wind energy).
These topics mark the three main contributions of this thesis: i) an analysis of the role of institutions in sustaining environmentally harmful energy subsidies; ii) an analysis of how renewable and fossil-fuel energy subsidies affect the technological change of renewable energy technologies; and iii) an analysis linking the institutional determinants of energy subsidies with the pace of technological innovation in the renewable energy sector, i.e. a political economy analysis of technical change oriented towards renewable-energy consumption.
This introductory chapter is structured as follows. The first part presents a simple and schematic approach to examine the need and effects of government subsidies on energy prices and energy consumption. This sets the framework for 17 17
describing the energy subsidy policy of governments across the globe, using data from the International Energy Agency (IEA) in section two. Governments provide energy subsidies to renewable energy sources and fossil fuels; because of the negative impact that fossil fuel consumption has on the environment, fossil fuel subsidies are the main instance of environmentally harmful subsidy in the energy sector. When referring to subsidy reform in this thesis, the discussion is about the policy debates on the need to reduce, remove or phase out fossil fuel. The third section discusses the rise of renewable-energy sources in the last decades as well as the innovations in the energy field as evidenced by empirical studies using the number of patent applications in particular technology fields. These two topics, energy subsidies and technological innovation in the renewable energy sector, identified with italics further in this chapter, are the backbones of this thesis. Section four concludes with the thesis research question and research design.
1.1 Externalities, producer and consumer-subsidies
Energy subsidies that reduce end-user prices result in over-consumption and hinder incentives to save energy or to improve energy efficiency. Energy production subsidies can promote the consumption of one source of energy over another by reducing the input costs of energy service providers (IEA, OECD, OPEC, & WB, 2010). Broadly defined, energy subsidies are any government action directed primarily at the energy sector that lowers the cost of energy production, raises the price paid to energy producer or lowers the price paid by the energy consumers (IEA, 1999, 2014). Researchers as well as policy makers including those employed by International Energy Agency (IEA), the Organisation for Economic Co-operation and Development (OECD), the Organisation of the Petroleum Exporting Countries (OPEC) and the World Bank (WB), have adopted this definition of energy subsidies over the last two decades in their efforts to identify and formulate policies that suppose unnecessary damages to the environment at the cost of tax-paying citizens (IEA et al., 2010).
Energy markets are characterised by externalities, which occur when the consumption or the production of a good is affected by the actions of other consumers and producers. Externalities are a form of market failure caused by prices not reflecting the costs and benefits of energy production and energy consumption. For
example, environmental externalities’ costs that arise from fossil-fuel energy consumption, such as greenhouse gas (GHG-) emissions, are borne by the whole society. It is also the case that all economies depend on having access to a secure, non-interrupted energy supply. When externalities occur, governmental measures are necessary to correct market failure.
Subsidies (and taxes) may be directed towards producers (with an influence on their production costs) or consumers (directly influencing the final price). Subsidies to energy producers, called upstream energy subsidies, are difficult to reform as they typically benefit large firms, e.g. electricity, oil and gas producing firms, that organise and lobby effectively against their removal (Olson, 1965; Victor, 2009). Energy subsidies downstream at the consumption or end-user stage benefit a higher number of recipients that have greater difficulty to organise because of their varied interests and hold less lobbying power to oppose reform (Victor 2009) but that also have the capacity to cause significant civil strife as a reaction to increases in energy prices. In line with previous research on the role of governance structures on the persistence of downstream fossil fuel subsidies (van Beers & Strand, 2013; 2015) the focus of this thesis is on energy consumer or-end-user subsidies. Beyond governance structures, this research focuses on a nation’s core political and institutional characteristics that mark administrations’ decisions to continue providing fossil fuel subsidies in order to help incumbents remain in power. Energy consumer subsidies lower the price paid by energy end-users such as households, owners of road vehicles and firms that can punish a politician’s initiative to remove or reduce energy subsidies through rioting or voting.
In the case of firms, downstream energy subsidies lead to lower production costs. Figure 1.1 illustrates the how energy subsidies affect the price and quantity of a good produced by a firm under perfect competition. In this setting, the good’s production has associated environmental pollution
Consider that ppriv on the vertical axis of the figure to be the private price that
corresponds to a competitive market in equilibrium in which the demand curve is intersected by the producer’s marginal supply cost curve Spriv. At this intersection
point, marked with the letter a, the quantity of the good consumed is qpriv.
Introduction 18 Chapter 1 18 18 Introduction 18 Chapter 1 18 18
describing the energy subsidy policy of governments across the globe, using data from the International Energy Agency (IEA) in section two. Governments provide energy subsidies to renewable energy sources and fossil fuels; because of the negative impact that fossil fuel consumption has on the environment, fossil fuel subsidies are the main instance of environmentally harmful subsidy in the energy sector. When referring to subsidy reform in this thesis, the discussion is about the policy debates on the need to reduce, remove or phase out fossil fuel. The third section discusses the rise of renewable-energy sources in the last decades as well as the innovations in the energy field as evidenced by empirical studies using the number of patent applications in particular technology fields. These two topics, energy subsidies and technological innovation in the renewable energy sector, identified with italics further in this chapter, are the backbones of this thesis. Section four concludes with the thesis research question and research design.
1.1 Externalities, producer and consumer-subsidies
Energy subsidies that reduce end-user prices result in over-consumption and hinder incentives to save energy or to improve energy efficiency. Energy production subsidies can promote the consumption of one source of energy over another by reducing the input costs of energy service providers (IEA, OECD, OPEC, & WB, 2010). Broadly defined, energy subsidies are any government action directed primarily at the energy sector that lowers the cost of energy production, raises the price paid to energy producer or lowers the price paid by the energy consumers (IEA, 1999, 2014). Researchers as well as policy makers including those employed by International Energy Agency (IEA), the Organisation for Economic Co-operation and Development (OECD), the Organisation of the Petroleum Exporting Countries (OPEC) and the World Bank (WB), have adopted this definition of energy subsidies over the last two decades in their efforts to identify and formulate policies that suppose unnecessary damages to the environment at the cost of tax-paying citizens (IEA et al., 2010).
Energy markets are characterised by externalities, which occur when the consumption or the production of a good is affected by the actions of other consumers and producers. Externalities are a form of market failure caused by prices not reflecting the costs and benefits of energy production and energy consumption. For
example, environmental externalities’ costs that arise from fossil-fuel energy consumption, such as greenhouse gas (GHG-) emissions, are borne by the whole society. It is also the case that all economies depend on having access to a secure, non-interrupted energy supply. When externalities occur, governmental measures are necessary to correct market failure.
Subsidies (and taxes) may be directed towards producers (with an influence on their production costs) or consumers (directly influencing the final price). Subsidies to energy producers, called upstream energy subsidies, are difficult to reform as they typically benefit large firms, e.g. electricity, oil and gas producing firms, that organise and lobby effectively against their removal (Olson, 1965; Victor, 2009). Energy subsidies downstream at the consumption or end-user stage benefit a higher number of recipients that have greater difficulty to organise because of their varied interests and hold less lobbying power to oppose reform (Victor 2009) but that also have the capacity to cause significant civil strife as a reaction to increases in energy prices. In line with previous research on the role of governance structures on the persistence of downstream fossil fuel subsidies (van Beers & Strand, 2013; 2015) the focus of this thesis is on energy consumer or-end-user subsidies. Beyond governance structures, this research focuses on a nation’s core political and institutional characteristics that mark administrations’ decisions to continue providing fossil fuel subsidies in order to help incumbents remain in power. Energy consumer subsidies lower the price paid by energy end-users such as households, owners of road vehicles and firms that can punish a politician’s initiative to remove or reduce energy subsidies through rioting or voting.
In the case of firms, downstream energy subsidies lead to lower production costs. Figure 1.1 illustrates the how energy subsidies affect the price and quantity of a good produced by a firm under perfect competition. In this setting, the good’s production has associated environmental pollution
Consider that ppriv on the vertical axis of the figure to be the private price that
corresponds to a competitive market in equilibrium in which the demand curve is intersected by the producer’s marginal supply cost curve Spriv. At this intersection
point, marked with the letter a, the quantity of the good consumed is qpriv.
Introduction 18 Chapter 1 18 18 Chapter 1 Introduction
describing the energy subsidy policy of governments across the globe, using data from the International Energy Agency (IEA) in section two. Governments provide energy subsidies to renewable energy sources and fossil fuels; because of the negative impact that fossil fuel consumption has on the environment, fossil fuel subsidies are the main instance of environmentally harmful subsidy in the energy sector. When referring to subsidy reform in this thesis, the discussion is about the policy debates on the need to reduce, remove or phase out fossil fuel. The third section discusses the rise of renewable-energy sources in the last decades as well as the innovations in the energy field as evidenced by empirical studies using the number of patent applications in particular technology fields. These two topics, energy subsidies and technological innovation in the renewable energy sector, identified with italics further in this chapter, are the backbones of this thesis. Section four concludes with the thesis research question and research design.
1.1 Externalities, producer and consumer-subsidies
Energy subsidies that reduce end-user prices result in over-consumption and hinder incentives to save energy or to improve energy efficiency. Energy production subsidies can promote the consumption of one source of energy over another by reducing the input costs of energy service providers (IEA, OECD, OPEC, & WB, 2010). Broadly defined, energy subsidies are any government action directed primarily at the energy sector that lowers the cost of energy production, raises the price paid to energy producer or lowers the price paid by the energy consumers (IEA, 1999, 2014). Researchers as well as policy makers including those employed by International Energy Agency (IEA), the Organisation for Economic Co-operation and Development (OECD), the Organisation of the Petroleum Exporting Countries (OPEC) and the World Bank (WB), have adopted this definition of energy subsidies over the last two decades in their efforts to identify and formulate policies that suppose unnecessary damages to the environment at the cost of tax-paying citizens (IEA et al., 2010).
Energy markets are characterised by externalities, which occur when the consumption or the production of a good is affected by the actions of other consumers and producers. Externalities are a form of market failure caused by prices not reflecting the costs and benefits of energy production and energy consumption. For
example, environmental externalities’ costs that arise from fossil-fuel energy consumption, such as greenhouse gas (GHG-) emissions, are borne by the whole society. It is also the case that all economies depend on having access to a secure, non-interrupted energy supply. When externalities occur, governmental measures are necessary to correct market failure.
Subsidies (and taxes) may be directed towards producers (with an influence on their production costs) or consumers (directly influencing the final price). Subsidies to energy producers, called upstream energy subsidies, are difficult to reform as they typically benefit large firms, e.g. electricity, oil and gas producing firms, that organise and lobby effectively against their removal (Olson, 1965; Victor, 2009). Energy subsidies downstream at the consumption or end-user stage benefit a higher number of recipients that have greater difficulty to organise because of their varied interests and hold less lobbying power to oppose reform (Victor 2009) but that also have the capacity to cause significant civil strife as a reaction to increases in energy prices. In line with previous research on the role of governance structures on the persistence of downstream fossil fuel subsidies (van Beers & Strand, 2013; 2015) the focus of this thesis is on energy consumer or-end-user subsidies. Beyond governance structures, this research focuses on a nation’s core political and institutional characteristics that mark administrations’ decisions to continue providing fossil fuel subsidies in order to help incumbents remain in power. Energy consumer subsidies lower the price paid by energy end-users such as households, owners of road vehicles and firms that can punish a politician’s initiative to remove or reduce energy subsidies through rioting or voting.
In the case of firms, downstream energy subsidies lead to lower production costs. Figure 1.1 illustrates the how energy subsidies affect the price and quantity of a good produced by a firm under perfect competition. In this setting, the good’s production has associated environmental pollution
Consider that ppriv on the vertical axis of the figure to be the private price that
corresponds to a competitive market in equilibrium in which the demand curve is intersected by the producer’s marginal supply cost curve Spriv. At this intersection
point, marked with the letter a, the quantity of the good consumed is qpriv.
19 Introduction 19 19 19 Introduction 19 19 Introduction
