Government Promotion of Renewable Energy Technologies: Policy Approaches and Market Development in Germany, the United States, and Japan

277 Pages·2011·2.049 MB·English

by  Katrin Jordan-Korte (auth.)

Katrin Jordan-Korte
Government Promotion of Renewable
Energy Technologies
GABLER RESEARCH
Katrin Jordan-Korte

G overnment Promotion
o f Renewable Energy
Technologies
Policy Approaches and Market
Development in Germany,
the United States, and Japan
RESEARCH
Bibliographic information published by the Deutsche Nationalbibliothek
The Deutsche Nationalbibliothek lists this publication in the Deutsche Nationalbibliografi e;
detailed bibliographic data are available in the Internet at http://dnb.d-nb.de.
Dissertation Freie Universität Berlin, 2010
D 188

1st Edition 2011
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Preface
I have made it! My PhD thesis is finally published. There were many moments when I
doubted this would ever happen. I would like to dedicate this book to all PhD students still
struggling to finish their projects.
The interest in my research topic certainly was the single most important factor that
kept me motivated to finish this work. The future of our energy system affects all of us
every day. This book presents the first comprehensive comparison of renewable energy
promotion instruments in Germany, the United States and Japan. If my work contributes
to a better understanding of how governments can promote renewable energy use more ef-
fectively and efficiently, then I will have achieved what I set out to do.
This research project would not have been possible without the help and support of
many individuals and institutions. I am particularly grateful to the German Institute for In-
ternational and Security Affairs (Stiftung Wissenschaft und Politik, SWP) for granting me
a scholarship through the Forum Ebenhausen. I have immensely benefited from the stimu-
lating environment at the SWP and various opportunities to present and discuss my re-
search results. I would also like to express my deep gratitude to Mr. Joseph C. Fox and the
Fox International Fellowship Program, which allowed me to pursue my research for one
year at Yale University. This experience has been extremely fruitful and rewarding. Most
importantly, however, I want to thank Professor Carl-Ludwig Holtfrerich, the supervisor
of my thesis, for his advice and guidance. I would also like to thank Professor Moritz
Schularick for his support.
I owe my deepest gratitude to my family and friends, who helped me to stay commit-
ted to this work. I want to thank my parents Inge and Dirk Jordan for their moral support.
I will forever be indebted to my husband Immo Korte, who has been a great help through
the ups and downs. My beautiful children Svea and Vito gave me the motivation and de-
termination to finish this project.

Katrin Jordan-Korte
Contents
List of Figures .................................................................................................................... XI
List of Tables ................................................................................................................... XIII
List of Abbreviations ........................................................................................................ XV

1 Introduction ............................................................................................................. 1
1.1 Motivation ............................................................................................................ 1
1.2 Research Questions and Aims ............................................................................. 3
1.3 Literature Review ................................................................................................ 4
1.4 Definition of Renewable Energy ....................................................................... 11
1.5 Research Design and Methodology ................................................................... 13
1.6 Outline ............................................................................................................... 17
2 Government Intervention in Renewable Electricity Markets .............. 19
2.1 Characteristics of Electricity Markets and Renewable Energy Technologies ... 20
2.2 Main Justification for Intervention: Market Failure .......................................... 22
2.2.1 Monopolistic Competition and Cartels .................................................. 23
2.2.2 Externalities ............................................................................................ 23
2.2.3 Forms of Externalities ............................................................................ 24
2.2.3.1 Pigovian Taxes ...................................................................... 27
2.2.3.2 Coase Theorem ..................................................................... 28
2.2.4 Information Asymmetry ......................................................................... 29
2.3 The Risk of Government Failure ....................................................................... 30
2.3.1 Capture Theory ....................................................................................... 31
2.3.2 Imperfect Information of the Regulator ................................................. 32
2.4 Industrial Policy Approaches ............................................................................. 32
2.4.1 The Competitiveness “Problem” ............................................................ 34
2.4.1.1 The Perspective of Traditional Trade Models....................... 35
2.4.1.2 The Perspective of New Trade Theory ................................. 36
2.4.1.3 Porter’s Diamond Model ....................................................... 39
2.4.2 Infant Industry Argument ....................................................................... 41
2.4.3 First-Mover Advantages ......................................................................... 44
2.4.3.1 First-Mover Advantages and Environmental Innovation ..... 45
2.4.3.2 First-Mover Advantages and Renewable Energy Industries 46
2.4.3.3 Lead Markets ......................................................................... 47
2.5 Summary and Conclusion .................................................................................. 49
VIII Contents

3 The Context of Renewable Energy Promotion .......................................... 53
3.1 Key Drivers of Renewable Energy Use ............................................................... 53
3.1.1 Increased Energy Demand ..................................................................... 54
3.1.2 The Limits of Fossil Fuels ...................................................................... 55
3.1.3 Sustainability and Climate Change ........................................................ 56
3.2 Three Main Policy Objectives of Renewable Energy Policy ............................. 58
3.3 Generation Costs of Renewable Energy and External Costs of Electricity
Generation ............................................................................................................. 59
3.3.1 Factors Relevant for Decrease in Generation Costs ............................... 60
3.3.2 Quantifying External Costs of Electricity Production............................ 62
3.4 Renewable Energy Policy Instruments ................................................................ 64
3.4.1 Price-Based Systems .............................................................................. 66
3.4.2 Quantity-Based Systems and Tradable Certificates ............................... 69
3.5 Summary ................................................................................................................ 71
4 National Markets and Promotion Policies for Renewable Energy
Sources ..................................................................................................................... 73
4.1 Renewable Energy Policy Instruments in Germany ........................................... 73
4.1.1 Renewable Electricity Targets ............................................................... 74
4.1.2 Renewable Energy Sources Act (EEG) .................................................. 75
4.1.3 Preferential Loans .................................................................................. 79
4.1.4 Further Financial Incentives ................................................................... 80
4.2 Renewable Energy Policy Instruments in the United States .............................. 82
4.2.1 Renewable Electricity Target ................................................................. 83
4.2.2 Renewable Energy Policy Instruments at the Federal Level.................. 83
4.2.2.1 Public Utility Regulatory Policies Act .................................. 84
4.2.2.2 Financial Incentives .............................................................. 84
4.2.2.3 Developments since 2007 ..................................................... 86
4.2.3 State Level ................................................................................................. 87
4.2.3.1 Renewable Portfolio Standards (RPS) .................................. 88
4.2.3.2 Public Benefit Funds ............................................................. 91
4.2.3.3 Net Metering ............................................................................ 92
4.3 Renewable Energy Policy Instruments in Japan ................................................. 94
4.3.1 Renewable Electricity Targets ............................................................... 95
4.3.2 Sunshine Project ..................................................................................... 96
4.3.3 Voluntary Purchase Agreements ............................................................ 97
4.3.4 Renewable Portfolio Standard ................................................................ 99
4.4 Government Renewable Energy R&D in Germany, Japan and the United
States ................................................................................................................... 101
4.4.1 Historical Development of Renewable Energy R&D .......................... 101
Contents IX

4.4.2 Share of Renewable Energy R&D in Total Energy R&D .................... 104
4.4.3 The Distribution by Renewable Energy Technology ........................... 106
4.5 Summary on Renewable Energy Policies in Germany, Japan and the
United States ....................................................................................................... 109
4.6 National Markets for Renewable Electricity ..................................................... 112
4.6.1 Renewable Power Market Development in Germany .......................... 112
4.6.2 Renewable Power Market Development in the United States ............. 116
4.6.3 Renewable Power Market Development in Japan ................................ 119
4.6.4 Comparison of Renewable Power Generation in Germany, Japan
and the United States ............................................................................ 122
4.6.5 Summary ............................................................................................. 127
4.7 Capacity to Induce a Decline in Generation Costs ........................................... 129
4.8 Lessons for the Design of Renewable Energy Promotion Instruments ........... 134
5 International Markets for Renewable Energy Technologies and
Export Promotion Policies .............................................................................. 139
5.1 Public Promotion of Renewable Energy Technology Exports ......................... 139
5.1.1 Export Promotion of Renewable Energy Technologies ....................... 139
5.1.1.1 Renewable Technology Export Promotion in Germany ..... 140
5.1.1.2 Renewable Technology Export Promotion in the United
States ................................................................................... 144
5.1.1.3 Renewable Technology Export Promotion in Japan ........... 146
5.1.2 Restrictions of Renewable Energy Technologies Imports ................... 149
5.2 International Markets for Renewable Energy Technologies ............................ 152
5.2.1 Methodology ........................................................................................... 153
5.2.1.1 Indicators ............................................................................. 154
5.2.1.2 Identifying Renewable Energy Goods ................................ 159
5.2.1.3 Dual or Multiple Use ........................................................... 161
5.2.1.4 Relevant Trade Codes ......................................................... 161
5.2.2 Development by Renewable Energy Technology ................................. 165
5.2.2.1 Wind Power ......................................................................... 168
5.2.2.2 Solar Photovoltaic ............................................................... 170
5.2.2.3 Hydro Power ....................................................................... 172
5.2.2.4 Geothermal and Biomass Power ......................................... 173
5.2.3 The Export Performance and the Level of Specialization of
Germany, Japan and the United States in Renewable Energy
Technologies ........................................................................................... 176
5.2.3.1 Exports Per Capita .............................................................. 180
5.2.3.2 Growth in Renewable Energy Trading ............................... 180
5.2.3.3 Destination of Exports and Sources of Imports .................. 184
5.2.3.4 World Market Share ............................................................ 187
X Contents

5.2.3.5 Share in National Exports ................................................... 189
5.2.3.6 Revealed Comparative Advantage ...................................... 191
5.3 Summary and Conclusions ................................................................................. 196
6 Explaining Differences in the Renewable Energy Policy
Approaches in Germany, the United States and Japan ....................... 201
6.1 Development of Domestic Environmental and Renewable Energy Policies .. 202
6.1.1 Development in Germany .................................................................... 202
6.1.2 Development in the United States ........................................................ 205
6.1.3 Development in Japan .......................................................................... 209
6.2 Emphasis on Economic Benefits ........................................................................ 213
6.2.1 Strong Renewable Energy Coalition in Germany ................................ 214
6.2.2 Less Emphasis on Economic Benefits of Renewable Energy Use
in the United States and Japan .............................................................. 215
6.3 Conclusion ........................................................................................................... 217
7 Summary and Conclusion: Implications for Renewable Energy
Instruments and Markets ............................................................................... 219

Appendix ...................................................................................................... 227
Bibliography ................................................................................................ 245