Managing tradeoffs in green industrial policies: The role of renewable energy policy design

Abstract

Green industrial policies around renewable energy (RE) are growing increasingly prevalent in emerging economy contexts as a means to foster low-carbon industrialization pathways. However, policymakers often face a tradeoff in their policy designs. In this paper, we focus on the tradeoff between minimizing the cost of lowcarbon energy generation to fuel traditional input-intensive industrialization strategies, and implementing potentially costly measures to build local industries around low-carbon energy technologies. Specifically, we utilize the cases of Mexico and South Africa to investigate how each country's distinct prioritization of these two objectives led to a divergence of their RE auction designs and outcomes. Specifically, using data on the involvement of local and foreign actors in Mexican and South African RE projects, policy documents, and interviews with public and private stakeholders in the two countries, we show how each country's policy design shaped RE market and bid price developments, and the formation of local RE value chains. We find that the prioritization of low-cost RE generation can result in a greater reliance on existing foreign value chains and capital, without building the local capabilities that could result in greater long-term benefits for the market. We further discuss the implications of our results for policymakers, focusing on providing recommendations for RE industrial policy design in general, and the calibration of local content incentives in particular.

Does Renewable Energy Consumption Successfully Promote the Green Transformation of China’s Industry?

“…However, the current level of renewable energy technology is generally poor, especially new energy, such as ocean and solar energies. Relevant studies on renewable energy have been carried out by scholars from the technical routes [6], case studies [7,8], or support policies [9]. In addition, some scholars have analyzed the possible impact of renewable energy consumption.…”

Processes of elite power and low-carbon pathways: Experimentation, financialisation, and dispossession

“…Secondly, del Río (2017) adds that the Mexican auction program has a unique "bonus system" where electricity from variable renewable resources is paid at a price that adjusts tariffs by "hourly adjustment factors," to better reflect real time prices and times of higher and lower demand. Matsuo and Schmidt (2019) note a final experimental feature of the auction program in Mexico, that it is continuously calibrated to maximize commercial participation and to increase the attractiveness for foreign investors. For instance, the regulatory elite behind the Mexican program relaxed requirements regarding bid qualification and commercial operation dates in order to allow early-stage projects to bid into the auction, and they permitted the indexing of 15-year power purchasing agreements to Mexican pesos or United States dollars.…”

“…Moving to financialisation, Matsuo and Schmidt (2019) emphasize a starting pointthe central financial goals inherent in the Mexican programme -by noting the entire bid evaluation scheme is intended to optimize "economic surplus" and "minimize bid costs" so as to attract financial flows. The Mexican program therefore has a number of determined attributes to maximize revenues and financial attractiveness.…”

Place-dependence of renewable energy technologies

“…Third, government intervention is one of the driving forces of the surge in clean energy investment from both developed and emerging countries (Harrison et al, 2017;Rodrik, 2014). The motives of governmental policies go beyond sheer environmental concerns (Matsuo and Schmidt, 2019;Schmidt et al, 2019). Promoting industry development for economic reasons is becoming increasingly important, especially in many emerging countries where the new low-carbon technological paradigm is seen as an opportunity for industrial catching-up (Harrison et al, 2017;Kemp and Never, 2017;Rodrik, 2014).…”