Lessons from Europe's Experience with Renewable Mandates and Subsidies

from NCPA

The state of Texas, one of the largest producers of wind energy in the world, can learn a great deal from European countries' experiences. (And so can Hawaii) While environmental advocates argue that targeted subsidies will reduce emissions and create "green" jobs, the experiences of Spain, Italy and the United Kingdom suggest that this may not be the case, says Josiah Neeley, an energy and environment policy analyst with the Texas Public Policy Foundation.

In 2007 the Spanish government vowed to increase its share of energy consumption from renewable sources from 8.5 percent in 2005 to 20 percent by 2020 via generous subsidies.

• A 2009 study by researchers at the Universidad Rey Juan Carlos found that Spain spent €571,138 (about $748,555) to create each "green job."
• The subsidies required 3.45 percent of all of Spain's household income tax revenues.
• The resulting higher electricity costs from renewable sources led to the loss of nearly 110,500 jobs elsewhere in the economy.
• Last month, the new government of Mariano Rajoy ended all subsidies.

Italy's remarkably similar experience suggests that the costs of these policies are not unique to Spain.

• Italy's subsidy system effectively instituted a price floor for wind energy at three-times the level dictated by market forces.
• A study performed at Italy's Instituto Bruno Leoni found that the capital necessary to create one green job could have created 6.9 jobs if invested in industry.
• The same study concluded that, though the subsidies for renewable energy would lead to a green sector employing between 50,000 and 112,000 people by 2020, at least 60 percent of these jobs would be temporary.
• Recent budget cuts have caused the government to cut back on its subsidies.

The United Kingdom also had a negative experience with renewable energy goals.

• The U.K. government set the goal of creating 10 percent of all energy from renewable sources by 2010, 15 percent by 2015 and 20 percent by 2020.
• A study by Verso Economics calculated the opportunity cost of the United Kingdom's subsidy system to be 10,000 direct jobs between 2009 and 2010 alone.
• One estimate puts a £4,000-price tag (about $6,315) on each household to achieve only 15 percent by 2020.

Source: Josiah Neeley, "Learning from Others' Mistakes: What Europe's Experience with Renewable Mandates and Subsidies Can Teach Texas," Texas Public Policy Foundation, February 2012.