238tion. In the following sections, we will check whether the strategy was delivered.

Are Green Subsidies an Efficient Environmental Policy?

3

Subsidized, carbon-free energy displaces conventional generators that emit CO2. There is little doubt that subsidies made a fundamental contribution to the greening of the power grid in Europe, through one obvious channel (increasing the amount of emissions-free energy) and a less obvious one (higher energy prices result in reduced consumption, which in turn implies lower emissions; for a quantitative estimate of the size of this effect, see Faiella & Lavecchia, 2021a). The question is, at what cost? Was it the most effective environmental policy?

In the following, we will provide a back-of-the-envelope calculation about the implicit abatement cost of carbon, based on 2018 data. According to the Council of European Energy Regulators, in 2018, around one-fifth of Europe’s gross electricity production, or 594.3 TWh, received the support of almost €60 billion worth of subsidies, equal to about €100.0/MWh. In order to estimate the volume of emissions abated by green generators, one must figure out what kind of power plants are displaced: in most cases, it is reasonable to assume natural gas-fueled generators, whose emissions factor may be estimated at around 400 g CO2/kWh. That is likely to underestimate the actual emissions abatement in the least carbon-efficient countries. However, it also overestimates the actual environmental outcome in countries such as France and Sweden, which The Failures of the Entrepreneurial State: Subsidies to Renewable Energies. . .

239Table 1 Supported renewable generation, subsidy expenditure, unit support, and average CO2 abatement cost in the European Union (2018)

Unit Supported Total support CO2 abatement CO2 abatement energy support [euro/ cost (high) [euro/ cost (low) [euro/ Country [TWh] [M euro] MWh] ton CO2] ton CO2] Austria 9.8 671 68.6 171.5 85.8 Belgium 3.4 350 103.2 258.1 129.1 Croatia 2.1 153 74.6 186.6 93.3 Cyprus 0.4 67 176.3 440.8 220.4 Czech 8.0 1710 213.0 532.4 266.2 Republic Denmark 20.0 578 28.9 72.1 36.1 Estonia 1.5 83 53.9 134.7 67.4 – – – Finland 0 0 France 51.6 4413 85.6 213.9 106.9 Germany 195.3 23,691 121.3 303.3 151.7 Greece 11.1 1197 107.7 269.4 134.7 Hungary 2.8 133 47.3 118.3 59.2 Ireland 8.0 87 10.9 27.3 13.7 Italy 63.3 11,147 176.2 440.4 220.2 Latvia 0.9 95 103.3 258.2 129.1 Lithuania 1.7 84 50.3 125.7 62.9 Luxembourg 0.0.5 52 98.1 245.3 122.6 Malta 0.2 17 113.3 283.3 141.7 Netherlands 15.8 1072 68.0 170.1 85.0 Portugal 17.1 827 48.4 121.1 60.6 Romania 9.1 412 45.4 113.4 56.7 Slovakia 2.7 301 113.2 282.9 141.4 Slovenia 0.6 101 162.9 407.3 203.6 Spain 56.2 5751 102.4 255.9 128.0 Sweden 23.3 413 17.7 44.2 22.1 United 89.1 6556 73.6 184.0 92.0 Kingdom E.U. 594.3 59,991 100.9 226.4 113.2 Source: Author’s elaboration on data from CEER

rely primarily on carbon-free energy sources (nuclear and hydropower) already. At any rate, we will also consider an overly optimistic scenario in which coal plants, instead of natural gas, are displaced: In this case, each additional green MWh results in the abatement of about 800 g CO2. Depending on the scenario, the unweighted average abatement cost is €113.2–226.4/ton CO2. Table 1 summarizes.

Table 2 shows the support to renewable power by generation technology and the corresponding carbon abatement cost in the same optimistic and pessimistic scenarios discussed above.

240C. Amenta and C. Stagnaro

Table 2 Support to renewable generation in the European Union by Technology (2018)

Min support Max support CO2 abatement cost CO2 abatement cost Technology euro/MWh] [euro/MWh] (high) [euro/ton CO2] (low) [euro/ton CO2] 37.5–435.8 18.8–217.9 Bioenergy 15.0 174.3 67.8–511.0 33.9–255.5 Geothermal 27.1 204.4 energy 28.0–253.8 14.0–126.9 Hydropower 101.5 11.2 30.2–1252.7 15.1–626.3 Solar PV 501.1 12.1 17.3–415.0 8.7–207.5 Onshore 166.0 6.9 wind 37.5–371.5 18.8–185.8 Offshore 148.6 15.0 wind 27.1–661.4 13.6–330.7 Others 264.6 10.9 Source: Author’s elaboration on data from CEER

The cost of subsidizing green power—and the implicit abatement cost of CO2— varies substantially by technology and country. That is irrespective of the environmental benefit, which does not depend on the specific technology employed (while it may change according to the country, even though in the above calculations we have made a simplistic assumption that one unit of green power displaces either natural gas or coal). Hence, the cost of abating one ton of CO2 may be as low as €8.7–17.3 (which is the case of onshore wind in Ireland) or as high as €626.3–1252.7 (as happens with solar PV in the Czech Republic).

From an environmental perspective, policy should maximize the amount of CO2 abated for any given level of expenditure or minimize the cost, given the abatement target. Such a significant variance suggests that emissions could have been cut more aggressively had expenditure been better targeted. Of course, differences may also depend on site-specific circumstances: not all countries have places as windy as the North Sea or as sunny as Southern Europe. In 2018, the average price of emission allowances (EUAs) in the Emissions Trading System—Europe’s cap-and-trade scheme—was €15.5/ton CO2. That means that one ton of CO2 could be cut, somewhere in Europe, at a cost that was one or even two orders of magnitude below what Europeans have paid so far in green subsidies. Even in 2021, when this chapter is being written, EUAs are traded at an all-time high of more than €60/ton CO2, the average cost of cutting carbon via green electricity subsidies exceeds by far the cost of many alternatives such as energy efficiency.

Future subsidization policies may be better designed, but they have not been an effective environmental policy so far.

241The Failures of the Entrepreneurial State: Subsidies to Renewable Energies. . .

Are Green Subsidies an Effective Industrial Policy?

Reducing emissions was not the only objective of green subsidies: proponents of the entrepreneurial state argued that generous incentives would spur a new industry and create jobs. Europe is the second-largest market for both wind and solar power after China. In 2019, total wind and solar capacity installed in the European Union was 203.5 GW and 146.7 GW, respectively, or 32.7% and 25.0% of the global installed capacity. Nevertheless, is Europe a producer or an importer of renewable technologies? From a more comprehensive economic perspective, this may be of relative relevance, but—if green subsidization is thought of as an industrial policy—it is the manufacturing of clean energies, not the installation, that matters. Most permanent jobs are created in the production of wind turbines and solar panels, while some temporary jobs are involved in their installation, and just a little in their operations and maintenance (Popp et al., 2020) and the overall employment impact is unclear (Aldieri et al., 2020; Bijnens et al., 2021).

Europe—particularly Denmark, Spain, and Germany—has traditionally been a powerhouse for wind power. This historical competitive advantage is well reflected by today’s market shares of wind turbine producers: Vestas, a Danish company, ranked first globally in 2018 with a market share of 20.3%. Other European manufacturers include Spain’s Gamesa (12.3% of the global market in 2018), and Germany’s Enercom (5.5%), and Nordex Acciona (5%) (Statista, 2018). Green incentives have certainly supported the deployment and, indirectly, R&D activities in the European wind industry, thereby making it more competitive abroad as investments in other regions have taken off. However, it should be emphasized that the European wind industry was already at the forefront of innovation in this technology. One may well argue that it was precisely the green entrepreneurial state in Denmark, Germany, and elsewhere that created (or at least nourished) the wind industry. Still, this is a dog chasing its tail: From an industrial policy perspective, a case can be made for subsidizing (or protecting) infant industries. However, the European wind industry came of age quite a few years ago and is still the recipient of large subsidies. Moreover, as the global market grows and lower-cost producers make their appearance—particularly in the Far East—it is ever-harder for Europe to defend its industrial leadership. As this chapter is being written, the E.U. Commission is pursuing an anti-dumping investigation concerning imports of steel wind towers from China (European Commission, 2020). On a trade basis, the investigation may or may not be founded; in fact, Chinese steel-makers are already subject to defensive measures in Europe because of the ongoing trade war with Beijing. This suggests that the competitive edge of Europe’s wind industry may not be secured in the long run despite the very high spending that has supported domestic installations. The manufacturing of wind turbines, blades, and other components is a competitive industry and a relatively mature one, for which market shares can be hardly defended, and costs, prices, and margins are on a declining track.