2430

Austria

Greece

France

Latvia

Romania

Denmark

Belgium

Ireland

Portugal

Cyprus

Spain

Netherlands

Italy

Sweden

Finland

Luxembourg

Estonia

Czech Republic

Slovakia

Poland

Slovenia

Croaa

Malta

Bulgaria

Hungary

Lithuania

Germany

Energy

Network

RES

Taxes

VAT

Fig. 2 Breakdown of Incumbents’ Standard Electricity Offers for Households in Capital Cities – November/December 2019 (annual expenditure). Source: Author’s elaboration on data from Acer C. Amenta and C. Stagnaro

244Electricity—and, more broadly, energy—expenditure tends to be regressive, meaning that poorer households spend a disproportionate share of their income on energy. Energy poverty—deﬁned as the situation whereby a household fails to meet its own domestic energy needs—is a real and growing problem in Europe (Faiella & Lavecchia, 2021). According to the EU Energy Poverty Observatory, about 7.3% of European households could not keep their home warm in 2018 (Bouzarovski & Thomson, 2020). Electricity prices for household consumers in Europe, on average, grew faster than inﬂation, from 16.4 euro cents/kWh in 2009 to 21.6 euro cents/kWh in 2019. The European Agency for the Cooperation of Energy Regulators claims that the observed increase in the price of electricity for households “mainly reﬂects increases in non-contestable charges of the electricity consumers’ bill.” In particular, “the average share of RES charges in ﬁnal electricity prices for households has more than doubled over the 2012–2019 period” (ACER, 2020, p. 18).

Both the European Union and member states have adopted, or are in the process of adopting, measures to address energy poverty, including conditional cash transfers, social tariffs, and means-tested energy efﬁciency incentives. Of course, the ﬁght against energy poverty is part of the broader campaign against poverty, even though there may be differences in the affected groups. Moreover, energy poverty has many causes, including poverty, unemployment, high commodity prices, the failure of the less afﬂuent households to retroﬁt their homes, and rising energy prices. However, the latter is peculiar insofar as it is an unintended consequence of policy decisions that are either intended to increase the price of energy (such as carbon taxes) or have price increases as an unintended consequence (such as green subsidies), or both. One obvious way to address energy poverty is to stop introducing policies that may exacerbate it. Incidentally, while most economists agree that pricing carbon is a good policy for the environment and economic growth, many would suggest using the revenues from carbon taxes or other forms of carbon prices to mitigate their unintended consequences. This could be done by transferring the proceeds from carbon taxation to the low-income, such as reducing labor taxes or cutting the existing levies in the price of energy. As we write, our country, Italy, has decided to use some of the revenues from auctioning CO2 allowances in the Emissions Trading System to mitigate increases in the cost of power. Austria is considering introducing a revenue-neutral carbon tax whose revenues would be recycled to cut taxes for middle-income earners, not just as a reaction to soaring energy prices in the short run but as a structural component of climate policy (Jones, 2021). That is a textbook example of market-based environmental policy (ARERA, 2021). On the contrary, green subsidies require funds to be extracted, either from tax-payers or from electricity consumers, and cannot be designed in a revenue-neutral guise.

The proponents of the entrepreneurial state and mission-oriented innovation would strongly disagree with the above statements and policies. They support carbon taxes and other forms of carbon prices not as a mere allocative instrument that helps internalize the external costs from using fossil fuels. Instead, they call for raising more revenues (from environmental and other taxes) to spend on the preferred technologies, such as solar and wind power. They advocate policies that may have The Failures of the Entrepreneurial State: Subsidies to Renewable Energies. . .

245many merits but contribute to increasing the cost of energy and fall disproportionately on low-income households.

6 From the Entrepreneurial State to the Entrepreneurial

Central Bank

As we have shown, the effort from the entrepreneurial state on climate change and the shift toward RES-E may be effective in cutting carbon emissions, but it is costly as well. Maybe this is the reason why proponents of the entrepreneurial state called the central banks to weigh in. Since the ﬁnancial crisis of 2007–2008, central banks have adopted unconventional monetary policy tools such as quantitative easing to avert ﬁnancial disaster and soften the consequences of the crisis. The Euro crisis immediately followed, and the use of unconventional monetary policy tools followed, becoming structural and almost conventional when the pandemic crisis hit. When purchasing assets in a quantitative easing program, central banks should be as neutral and independent as possible, trying not to distort capital allocation and the proper functioning of the market. While Jerome Powell, the Federal Reserve chairman, declared that climate change is not something that the central bank considers in setting monetary policy (Derby, 2021), on July 8, 2021, the European Central Bank (ECB) presented an action plan to explicitly include climate change considerations in its monetary policy strategy (ECB, 2021). Both institutions properly act when they actively explore what climate implications are for their supervisory, regulatory, and ﬁnancial stability responsibilities. However, the ECB upped its game by considering relevant climate change risks in its due diligence procedures for its corporate sector asset purchases by considering the alignment of issuers with, at a minimum, E.U. legislation implementing the Paris Agreement through climate change-related metrics or commitments of the issuers to such goals. The rationale for this intervention is that climate change supposedly affects price stability through its impact on relevant macroeconomic indicators. Carbon transition also affects the value and the risk proﬁle of the assets held on the central bank’s balance sheet with a potential undesirable accumulation of climate-related ﬁnancial risks.

Climate change risks are relevant for the ﬁnancial sector, and the ECB must support research, studies, and the disclosure of relevant information. We ﬁnd it very dangerous to adopt strategies to force banks and private companies to defund fossil fuel industries and provide subsidized funding to green projects that are not easy to deﬁne. The energy transition from fossil fuels is a crucial process that calls both public and private stakeholders to contribute. However, setting the targets and the