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«I. Introduction Green growth can be defined as a trajectory of economic development that fully internalizes environmental costs, including most ...»

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- Executive Orders 13423 and 13514

- American Recovery and Reinvestment Act of 2009: over $80 billion to support clean energy R&D and deployment

- EPA's Final Greenhouse Gas Tailoring Rule (2010) and proposed Carbon Pollution Standard for New Power Plants Tools used

- Federal Production Tax Credit (about to expire) and Investment Tax Credit (or direct grants): the PTC reduces the federal income taxes of renewable energy facility owners per KWh produced, and ITC reduces federal income taxes for investments in renewable energy projects

- Tax credits for energy efficiency upgrades (both for commercial entities and individuals) and purchases of electric vehicles

- EPA standards for greenhouse gas emissions from mobile and stationary sources under the Clean Air Act (in process of being implemented but facing legal challenges)

- Loan guarantees and concessional lending for projects that reduce GHG emissions

- Grant funding for R&D in renewable energy, energy efficiency, CCS, electric vehicle, fuel cell technologies

- Grants to support training of "green-collar" workers

- Government procurement policies (e.g. purchasing energy-efficient vehicles)

- Renewable fuel standards, fuel efficiency standards (Corporate Average Fuel Economy, or "CAFE," standards), and a "gas guzzler tax" on new cars

- Accelerated deductions for renewable energy investments

- Energy efficient mortgages

- Qualified Energy Conservation Bonds

- Manufacturing Tax Credits for manufacturers of energy efficient appliances; tax credits for gas stations/fueling centers that install allternative fuel pumps; tax credits for alternative fuels

- Federal appliance standards

- Cap-and-trade (at the state level)

- State-level Renewable Portfolio Standards

Significant government programs


- DOE's Office of Energy Efficiency and Renewable Energy programs, including: Wind (including Wind Powering America), Solar (including SunShot Initiative), Bioenergy, Geothermal Technology, Hydrogen & Fuel Cell Technologies, Vehicle Technologies, Buildings, Energy Efficiency and Conservation Block Grant, and Weatherization and Intergovernmental programs

- Renewable Fuel Standard Program

- DOE Section 1703 and Advanced Technology Vehicles Manufacturing Loan Programs

- Energy Star

- Federal support to states for RE and EE programs: DOE's State Energy and EPA's State Climate and Energy Partnership Programs

- Renewable portfolio standards in a majority of states (at least 33 have RPS standards or goals in place)

- California cap-and-trade program created regulations and market mechanisms to reduce the state's GHG emissions to 1990 levels by 2020, with mandatory caps beginning for significant emissions sources

- Regional Greenhouse Gas Initiative (RGGI): mandatory cap-and-trade program for fossil fuel-fired power plants, consisting of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont.

- California's Alternative and Renewable Fuel and Vehicle Technology Program; California Solar Initiative, Go Solar California

- New York State Energy Plan; Western Climate Initiative

–  –  –

- Energy Transition (2011): policy document phasing out nuclear energy by 2022, renewable energy and energy efficiency targets

- Energy Concept (2010) : road map and commitment to reduce GHG emissions by 40% by 2020 and 80-95% by 2050

- Integrated Energy and Climate Programme ("IEKP", 2007): defined primary and secondary legislation and support programs for GHG reduction

- Adherence to EU Energy and Climate Package ("20/20/20"), including:

- EU Emission Trading Directive

- EU Effort Sharing Decision: binding annual GHG reduction targets for sectors not covered by EU ETS

- EU Renewable Energy Directive: binding national targets for raising the share of renewable energy in energy mix by 2020

- EU Energy Service Directive

- EU Energy Efficiency Directive

- 2007 Biofuels Quota Act (mandates minimum percentage of biofuel-petroleum blend) and the 2011 Fuel Quality Ordinance

- Renewable Energies Heat Act (2009)

- Energy Saving Ordinance (2009): regulates energy performance of new buildings and provides energy certification of buildings

- Energy Industry Act (2005)

Tools used

- Direct funding to R&D in renewable energy and energy efficiency

- Feed-in tariff for renewable energy, together with "market premium" allowing plant operators to sell renewable energy directly back into the grid and keep the premium

- Concessional lending/subsidies for renewable energy projects and energy efficiency improvements

- Insurance against non-discovery risk for geothermal energy

- Quotas for minimum percentage of biofuel in fuel

- New vehicle tax depending on vehicle CO2 emissions and type/size of engine

- Energy performance standards for buildings, appliances

- Participation in EU Emissions-Trading Scheme

- Taxes on electricity and fuel use, but controversial exemption of energy-intensive industries if they commit to annual energy efficiency improvements

- State (Länder) support to renewable energies (varies by state)

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- Sixth Energy Research Programme (EUR 3.5 billion for research on low-carbon technologies)

- German Special Fund on Energy and Climate ("EKF")

- KfW Renewable Energies Programme

- KfW Offshore Wind Energy Programme

- Energy Efficiency Fund

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- Renewable Energy Law (2006)

- 12th Five Year Plan (2011-2015): energy efficiency, carbon emissions reduction and new energies are priorities

- 12th Five Year Plan for Energy Development

- 12th Five Year Plan for Solar Power

- 12th Five-Year Work Plan on Controlling GHG Emissions

- Energy Saving and New Energy Vehicle Development Plan (2011-2020)

- National Medium and Long-Term Development Plan for Renewable Energy (2007)

- Medium and Long-Term Energy Conservation Plan (2004)

Tools used

- Feed-in tariffs for solar, wind (at the national and provincial levels)

- Fiscal incentives to support R&D or manufacturing in renewable energies (including VAT and income tax breaks, exemptions from custom duties and import VATs)

- Concessional lending for renewable energy projects

- Subsidies to green technologies (including to solar PV manufacturers)

- Mandated energy reductions for largest firms (~17,000)

- National cap on energy consumption, coal output

- Forthcoming national emissions trading system (envisaged for 2016-2020, following the pilot projects)

- Forthcoming fuel economy standards for automotive industry

- Direct funding to R&D Significant government programs

- Pilot cap-and-trade programs in Beijing, Tianjin, Shanghai, Chongqing, Shenzhen, and Guangdong and Hubei provinces, covering 256 million people and accounting for 3.5% of global economy

- Solar Roofs Program and Golden Sun Program: provide investors with financial incentives and scientific and technological support for solar energy projects

- Large R&D programs, parts of which support clean tech development:

- National Basic Research Program ("Program 973")

- MOST's innovation fund for small technology-based firms

- MOST’s National High-Tech R&D Program ("863")

- Key Technologies R&D Program

- Top 10,000 Enterprises Energy Efficiency Program

- City-based pilot projects to construct low-carbon transport systems

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- National Action Plan on Climate Change (2008), consisting of eight missions, including the National Solar Mission

- Integrated Energy Policy (2006)

- National Electricity Policy (2005)

- Energy Conservation Act (2001)

- Air (Prevention and Control of Pollution) Act (1981)

- Environment (Protection) Act (1986)

Tools used

- Renewable portfolio standard

- Renewable Energy Certificates for wind, solar and biomass power plants (but market near collapse)

- Generation-Based Incentives for wind and solar (providing payment per kWh) targeting large-scale IPPs (on and off)

- Accelerated depreciation for wind investments, targeting smaller investors (currently on pause)

- Set of feed-in tariffs, varying by state and source type

- State-level feed-in-tariff for wind power for 13+ states

- National feed-in-tariff only for federal or inter-state power generators (few)

- Gujarat has a feed-in-tariff for solar-generated electricity, with at least two other states possibly following suit

- Fiscal incentives (e.g. reduction of tariffs on solar imports and concessional lending)

- Subsidies to R&D in renewable energy

- (Planned) Insurance for solar power producers against default by state utilities ("Solar Payment Security Account")

- (Planned) Pilot Emissions Trading Schemes in three states

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- Jawaharlal Nehru National Solar Mission

- National Mission for Enhanced Energy Efficiency

- National Clean Energy Fund (funded by coal tax)

- Solar Cities Development Programme (forthcoming)

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Chinese efforts have gone heavily into PV projects, mainly directed for the world market.

This was a key source of Solyndra’s financial difficulties, discussed in the next section. Under the second phase of its Golden Sun Program, the Chinese government allocated a total of 13 billion yuan ($2 billion) to support the domestic PV market in 2012, with 7 billion yuan ($1.1 billion) earmarked to subsidize solar PV demonstration projects. Since 2009, a parallel program provides financial incentives of up to 20 yuan/W. China Development Bank provides billions of dollars in concessional lending to renewable energy. In 2010 the Development Bank had credit lines worth RMB 282 billion (around US$ 45 billion) available for the renewable energy industry. Some Chinese provinces and municipalities are particularly active and have their own fiscal incentives to promote new plant investment in the solar industry. Beijing, for example, provides upfront subsidies for qualified demonstrative PV projects.6 In the U.S., many of the incentives for investment in green technology were put in place (or strengthened) with the American Recovery and Reinvestment Act of 2009. The Act contained loan guarantees, tax incentives and other subsidies amounting to $20 billion for research and investment in green technologies. In June 2013, President Obama announced an ambitious Climate Action Plan, which included an additional $8 billion in loan guarantees for advanced fossil energy projects that reduce GHG emissions.7 India employs a range of tax incentives (tax holidays, accelerated depreciation, reduced VAT), low-interest loans, and pilot projects. One thing that is common across all these countries is the prevalence of policies that encourage the use and development of new technologies instead of protectionist trade policies that close off markets to foreign companies. On balance, therefore, these policies aim to move incentives in the right direction.

The financial incentives in solar energy have led to over-capacity, and China’s PV sector was facing severe financial difficulties in 2013. They also produced trade disputes with the U.S. and the EU.


-12How well do these programs work in practice? The short answer is that we do not know. In the next section, I review a celebrated failure, Solyndra, as a prelude to a discussion of appropriate design for green industrial policies.

III. Solyndra: economics and politics In May 2010, President Obama visited a company in Fremont, California, praising it as a “symbol of progress.” The company was Solyndra, a solar cell company founded in 2005 and the first to get funding under an expanded loan-guarantee program to develop green technologies, part of Obama’s 2009 American Reinvestment and Recovery Act. “The true engine of economic growth will always be companies like Solyndra,” Obama said (Greene 2012). The Obama administration would eventually sign off on $535 million in loan guarantees to Solyndra, to supplement $450 million raised from private investors.

By August 2011 Solyndra had gone bankrupt. Its collapse raised questions in the eyes of many observers about the desirability of “picking winners,” as the Obama administration had apparently done. It also highlighted the risks of political favoritism and cronyism, which many thought had played a role in the administration’s continued support of Solyndra.

The reason behind Solyndra’s collapse seems clear in retrospect. Solyndra’s technology for producing photovoltaic cells relied on CIGS (copper indium gallium selenide) as the semiconducting material, instead of silicon which was vastly more common in the industry. CIGS was cheaper than silicon but less efficient at converting solar energy. Solyndra was founded at a time when silicon prices were rising rapidly. The competitive case for Solyndra relied heavily on silicon prices remaining high. But from early 2008 on, silicon prices tumbled as precipitously as they had risen earlier, thanks in large part to new capacity coming online in China. Within a year, spot prices for silicon collapsed from more than $450/kg to less than $100/kg (Figure 1). At such prices, Solyndra’s

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Meanwhile, PV capacity expanded six-fold globally between 2007 and 2010 (Table 5). The company failed even though it had met its own technological and cost-reduction goals.

Figure 1: Solar-grade silicon prices ($/kg.) Source: Bazilian et al. (2013)

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