The Political Economy of Renewable Energy in the US and Europe.

This paper uses a political economy lens to examine the growth of renewable energy, as a source of power and as a business sector, in the US and Europe. The paper reports on a study of renewable energy sectors in Massachusetts, and assesses the ability of state authorities to make a significant impact on renewable energy production and associated economic activity. The conceptual framework draws from and integrates theories of international environmental regimes with theories of technological development. We posit that the growth of renewable energy takes place within national and transnational networks of governance comprising formal regimes at multiple levels, informal norms and practices, as well as market structures and processes. Actors within these networks include states and sub-national authorities, multilateral institutions, firms and NGOs. Technological development and market growth of renewables are thus viewed as embedded in a broad social, economic, and political system of governance. Corporate strategies and public policy thus interact within, as well as constitute, the fabric of environmental governance. The paper compares and contrasts several aspects of this system of governance in the US and Europe. Hopes for an effective regime to address climate change have shifted from a mandatory multilateral agreement, the Kyoto protocol, to a plethora of regional, national, and sub-national programs and initiatives. These policy responses include carbon emission limits and trading systems, direct subsidies for renewables, and Renewable Portfolio Standards that mandate the use of specific proportions of renewable energy in electricity generation. Such policy responses are required because the market will not, by itself, respond adequately to the environmental challenge. Given the rapid growth expected in global markets for low-emission technologies, the policy agenda is also driven by economic development goals, as countries and US states vie for competitiveness and market share in these emerging markets. The growth of renewable energy has been particularly strong in Europe, and two Danish companies are the world?s leading suppliers of wind energy turbines. While there has been significant growth in the US, it lags in comparison to Europe. The paper argues that policy in the US is characterized by fragmentation, uncertainty, lack of coordination, a lack of substantive taxes or subsidies, and the absence of a meaningful overall emissions reduction target. City and state level programs are often, as a result, small scale and frequently comprise a repackaging of existing policies. Cities generally lack the institutional, technical, and administrative capacity for effective action. Given federal and state budget priorities, financial resources are very limited. In Massachusetts, for example, renewable energy activities are funded by a ?systems benefit charge? of 0.0005 cents/kWh. A fund to reimburse nuclear power plant companies for their losses, by contrast, is funded from an electricity charge that is thirty times as large. The federal wind tax credit of 1.5 cents/kWh is only renewed annually, often retroactively, giving potential investors little predictability. Without hard emission caps, the price of carbon in voluntary trading schemes is very low. Federal (and corporate) investments in low-emission technologies have tended to focus on advanced, breakthrough technologies, with little regard for their commercial viability or reliability. In Europe, by contrast, policies tend to be better funded, targeted, and more consistent. Wind subsidies are a case in point, and centralized government action has offset the political weakness of the renewable energy industry. The plethora of state, local, and regional initiatives in Europe take place against a backdrop of confidence that firm EU-wide emissions targets will be set. Technological innovation has emphasized incremental change, reliability, and market viability. The activities of large multinational companies (MNCs) in fossil fuel related sectors reflect these regional differences. It is argued that European MNCs, particularly in the oil industry, have made significant investments in renewables due to their relatively weak position in the European political economy and the policy environment in the EU around the climate change issue. In addition, these companies lack the history of significant losses and unstable policy that American companies have experienced in relation to renewables. These companies are also optimistic regarding future demand for low-emissions technologies. In the United States, by contrast, the lack of a coherent federal climate change policy and the strong political position of energy companies has resulted in little pressure on existing energy-related MNCs to invest in renewables. Moreover, US companies tend to have institutionalized pessimistic assumptions regarding low-emission technologies and consumer flexibility. [ABSTRACT FROM AUTHOR]