Energy and Politics

Politically, increasing development in the renewable energy sources (RES) market has met with setbacks at the global level, where achieving coordinated energy policies and targets continues to be difficult, even though there remains an underlying commitment. 1 Governments must balance energy creation and usage with economic stability and CO2 emissions targets. This balancing act varies significantly per nation and political region. Europe is a good example of this variation, where EU member countries have EU energy targets 2 3, but go about achieving these targets in different ways.4

The principle instruments that governments are using to stimulate the RES market are policies and subsidy programs.

Policies are effective when they help to pave new industry infrastructure by altering legislation to favor new developments over older ones. This favorable position allows the developing industry to more effectively compete with the more established industry. At issue is the loss of revenue that the established industry will suffer, and these much wealthier players will try to redirect government efforts away from the variation.

Subsidy programs are divided into two groups: innovation and exploration. Innovation involves research and development from research organizations including universities, and investment beyond subsidies, from venture capitalists. Exploration involves RES products that are ready for the consumer market, where investment beyond subsidies comes from banks. Exploration subsidies help stimulate the RES market by allowing consumers to purchase RES products at low prices. They also exist to compensate consumers who are investing in technologies that still underperform in terms of cost and efficiency relative to what can be achieved in the traditional energy infrastructure. However, subsidies have limited funding and affect interest in investment, which drops when subsidies run out. The long term political objective for RES subsidies is to gradually faze them out as RES technologies become competitive with traditional energy resources 5 (p. 10), at which point market forces will drive development. This process has already started in Germany. 6

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