Economic impacts from the promotion of renewable energy technologies: The German experience

doi:10.1016/j.enpol.2010.03.029

Energy Policy

Volume 38, Issue 8, August 2010, Pages 4048-4056

https://doi.org/10.1016/j.enpol.2010.03.029 Get rights and content

Abstract

The allure of an environmentally benign, abundant, and cost-effective energy source has led an increasing number of industrialized countries to back public financing of renewable energies. Germany’s experience with renewable energy promotion is often cited as a model to be replicated elsewhere, being based on a combination of far-reaching energy and environmental laws that stretch back nearly two decades. This paper critically reviews the centerpiece of this effort, the Renewable Energy Sources Act (EEG), focusing on its costs and the associated implications for job creation and climate protection. We argue that German renewable energy policy, and in particular the adopted feed-in tariff scheme, has failed to harness the market incentives needed to ensure a viable and cost-effective introduction of renewable energies into the country’s energy portfolio. To the contrary, the government’s support mechanisms have in many respects subverted these incentives, resulting in massive expenditures that show little long-term promise for stimulating the economy, protecting the environment, or increasing energy security.

Introduction

The allure of an environmentally benign, abundant, and cost-effective energy source has led an increasing number of industrialized countries to back public financing of renewable energies. For Europe, the European Commission set a target of 20% for the share of electricity from renewable sources by 2020, which is intended to foster compliance with international agreements on greenhouse gas emission reductions³ and to provide opportunities for employment and regional development (EC, 2009: p. 16). These goals are shared by the German Environment Ministry, which regards renewables as a central pillar in efforts to protect the climate, reduce import dependency, and safeguard jobs (BMU, 2008b: p. 8).

A closer look at Germany’s experience, however, whose history of public support for renewable electricity production stretches back nearly two decades, suggests that such emphasis is misplaced. This paper critically reviews the centerpiece of the German promotion of renewable energy technologies, the Renewable Energy Sources Act (EEG), focusing on its cost and the associated implications for job creation and emissions reductions. The paper will show that, by and large, government policy has failed to harness the market incentives needed to ensure a viable and cost-effective introduction of renewable energies into Germany’s energy portfolio. To the contrary, the government’s support mechanisms have in many respects subverted these incentives, resulting in massive expenditures that show little long-term promise for stimulating the economy, protecting the environment, or increasing energy security.

The following section describes Germany’s growth of electricity production from wind power, photovoltaics (PV) and biomass, the predominant renewable energy sources, together accounting for about 90% of supported renewable electricity production in 2008 (BMU, 2009a). Section 3 presents cost estimates of Germany’s subsidization of PV modules and wind power plants that were installed between 2000 and 2008, thereby providing for an impression of the resulting long-lasting burden on German electricity consumers. In Section 4, we assess the potential benefits of Germany’s subsidization scheme for the global climate, employment, energy security, and technological innovation. The last section summarizes and concludes.

Section snippets

Germany’s promotion of renewable technologies

Through generous financial support, Germany has dramatically increased the electricity production from renewable technologies since the beginning of this century (IEA, 2007: p. 65). With a share of about 15% of total electricity production in 2008 (Schiffer, 2009: p. 58), Germany has more than doubled its renewable electricity production since 2000 and has already significantly exceeded its minimum target of 12.5% set for 2010. This increase came at the expense of conventional electricity

Long-lasting consequences for electricity consumers

The 2009 amendment to Germany’s EEG codifies the continued extension of generous financial support for renewable energy technologies over the next decades, with each newly established plant commonly being granted a 20-year period of fixed feed-in tariffs − already an original feature of the EEG when it was enacted in 2000. That is, a producer who, for instance, sets up a PV installation in 2010 is guaranteed fixed feed-in tariffs for the next 20 years at the level prevailing in 2010,

Impacts of Germany’s renewables promotion

Given the substantial cost associated with Germany’s promotion of renewable technologies, one would expect significantly positive impacts on the environment and economic prosperity. Unfortunately, the mechanism by which Germany promotes renewable technologies confers no such benefits.

Summary and conclusion

Although renewable energies have a potentially beneficial role to play as part of Germany’s energy portfolio, the commonly advanced argument that renewables confer a double dividend or “win-win solution” in the form of environmental stewardship and economic prosperity is disingenuous. In this article, we argue that Germany’s principal mechanism of supporting renewable technologies through feed-in tariffs, in fact, imposes high costs without any of the alleged positive impacts on emissions

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¹: Also Ruhr University Bochum (RUB).

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Economic impacts from the promotion of renewable energy technologies: The German experience

Abstract

Introduction

Section snippets

Germany’s promotion of renewable technologies

Long-lasting consequences for electricity consumers

Impacts of Germany’s renewables promotion

Summary and conclusion

Energy Policy

Energy Policy

Energy Policy

Energy Policy

Energieverbrauch in Deutschland im Jahr 2008

Bundesverband der Energie- und Wasserwirtschaft e.V

Ermittlung der Arbeitsplätze und Beschäftigungswirkungen im Bereich der Erneuerbaren Energien

Zur Förderung Erneuerbarer Energien

Erneuerbare Energien: Arbeitsmarkteffekte

Leitstudie 2008 – Weiterentwicklung der “Ausbaustrategie Erneuerbarer Energien vor dem Hintergrund der aktuellen Klimaschutzziele Deutschlands und Europas”

Bruttobeschäftigung Durch Erneuerbare Energien in Deutschland im Jahr 2008

Erneuerbare Energien im Jahr 2008

Umweltwirtschaftsbericht 2009

Umweltzertifikate. Der steinige Weg zur Marktwirtschaft. Herausgeber des Sonderheftes 9

Zeitschrift für Angewandte Umweltforschung