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Demand versus Supply side promotion
A qualitative comparison of green electricity
programs in Germany and the Netherlands
Author: Matthias T. Huynink
Thesis supervisor: Rosa M. Sanchez
2nd
reader: Jurgen van der Heijden
Assignment: Bachelorthesis Citizens in Europe
Final Version: 29/01/2013
Pages: 33
Table of Contents
1. Introduction------------------------------------------------------------------------------------------3 - 5
2. Supply versus Demand--------------------------------------------------------------------------5 - 10
2.1. Supply and Demand as Idealtypen 5 – 6
2.2. From labour market to macro-economic vision 6 - 7
2.3. From labour market to electricity market 7 – 8
2.4. Earlier written material 8 - 10
3. Methodological Approach---------------------------------------------------------------------10 - 15
3.1. Goals 10 - 11
> Figure 1. Schematic overview main arguments 10
3.2. Data and Cases 11
3.3. Qualitative Comparison 11 - 13
3.4. Operationalization 13 - 14
3.5. Planning 14 - 15
> Figure 2. Schematic overview paper 14
4. Analyses-------------------------------------------------------------------------------------------15 - 23
4.1. Macro-economic vision 15 – 17
4.2. Intentions of the programs 17
4.3. Visions and intentions in accordance? 17 - 18
4.4. Programs 19 - 21
4.5. Measures implemented 21 - 22
4.6. Intentions and measures in accordance? 22 - 23
5. Internal Effectiveness--------------------------------------------------------------------------------23
5.1. Secondary target 23
6. Final Remarks------------------------------------------------------------------------------------24 - 25
6.1. Conclusion – Primary target 24
6.2. Discussion 25
References-------------------------------------------------------------------------------------------26 - 31
2
Appendix---------------------------------------------------------------------------------------------32 – 33
3
1. Introduction
The seaquake and following tsunami that flooded and destroyed parts of Fukushima, Japan,
has given new momentum to a decennia-old discussion about the possibilities of nuclear
energy as a stable alternative to fossil energy. The nuclear disaster triggered several states
to postpone construction plans of new nuclear facilities or even to close down existing ones.
New alternatives have been and still are being introduced to fill in the gap that nuclear
energy has left for them, as the alternative to the depleting fossil energy resources.
Furthermore, new emphasis has been placed, globally and nationally, on the development of
existing alternatives. The European Union (EU) already before the disaster pressed its
member countries to invest in electricity – being the biggest energy consumer – based on
solar, wind and/or thermal power. With strict targets set, European leaders all over are
creating and implementing new policies, laws and national targets.
Two such countries are Germany and the Netherlands. Both modern economies with
a fairly stable political system that have, each in their own way, tried to achieve these
targets. Despite the similarities between the two countries, a difference appears in results
achieved thus far with regard to green electricity development. Germany, a leading example
around the world when it comes to green energy overall, consumed 16.9% of its total
electricity production from renewable sources in 2010, while in that same year the Dutch
produced 9.2% green energy as a percentage of the total energy production (Database,
Eurostat). Especially when this is compared to the targets set by the EU for both countries –
9% for the Netherlands and 12% for Germany – the difference in development between both
countries becomes evident. Moreover, while the German annual percentage increased
significantly the last two years, in the Netherlands this development has been modest.
Critics have dismissed the Dutch approach as being one of the worst in Europe (Site
Energieraad). The German government, in contrast, is becoming ever more ambitious in its
targets and goals (Site De DrentseMonden). This paper will present the research conducted
on the reason for this difference in results, which is to answer the main question: Can the
difference in results achieved by German and Dutch energy policy be explained by the content
of the policies implemented in these two countries?
For both countries only the main programs will be examined. With regard to the
Dutch policy instruments this entails the MEP (Subsidieregeling Milieukwaliteit
Elektriciteitsproductie), which came to life in 2004 to stimulate the production of green
electricity and expand its national market share further from its then 4.4%. Due to its own
4
success, however, it eventually became financially untenable and was consequently
terminated in 2006. Its successor, the SDE (Stimulering Duurzame Energieproductie), was
introduced in 2008 and was further extended to include energy from heat and gas in 2011
with the coming of the SDE+.
The German main equivalent of the policy instrument implemented to further
develop the green electricity market also came into existence in 2004 – at least in its current
form. The EEG (Ernuerbare-Energien Gesetz), as it was called, already existed since 2000, yet
major amendments have been made during its review in 2004. As stated then, the objective
of the EEG was to ‘[…] increase the share of total power supply which is derived from
renewables to at least 12.5 per cent by 2010 and at least 20 per cent by 2020’ (BMU, 2004),
which back then was still only 9.2% of gross total consumption (Database Eurostat). Real
development in green energy production had yet to begin, as the topic had only recently
made it to the national agenda.
This paper will try to answer the research question by focussing specifically on
whether the above mentioned programs were intended to either support the supply side or
the demand side of green electricity, and if they did in fact succeed in supporting one or the
other. Both in the academic world as in the political arena the debate concerning which
approach provides the greater effect has been conducted, concerning green energy as well
as other topics. However, as so often in practice, most programs will not be merely one or
the other, since no government is limited to only one policy instrument. Still, by looking into
detail at the different programs initiated by the German and Dutch government, this paper
does reveal a certain general pattern in which the respective governments are biased to
either demand or supply side promotion.
By answering this question this paper expects not only to add to the debate between
proponents and opponents about demand or supply side promotion, yet also to provide new
insights into how the development of green electricity can be accelerated. Especially when
one knows which kinds of reservations in the national budget are made for the support of
green electricity (into billions of Euros per year)1
, the relevance of the topic and this
research would seem even more evident. A small remark already has to be made here,
though, since this paper does not aim at establishing government policy as the sole influence
on green electricity development, nor will it provide an evaluation of which program works
better where. Only minor attention will be given to internal effectiveness of the policy
making process and its effect on the green electricity development. Primarily this paper
1
See for instance Energy Report 2011 and BMU, 2011.
5
seeks to conclude whether the supply or demand focus of policy instruments is a factor of
influence.
This paper will in fact demonstrate that there is in fact a particular focus of the
programs on either demand or supply side policies and that this might have (though not
solemnly) influenced the development of green energy production in both countries. With
regard to the internal effectiveness of the policy making process, no direct link could be
established between this effectiveness and the green electricity development. After
elaborating more on the theories of demand and supply (and its indicators), the research
design and earlier research conducted, it will do this by looking into more detail to what the
macro-economic vision of both governments was; how these were in line with the intentions
of the programs; and whether the actual included and implemented measures logically
followed from these intentions.
2. Supply versus Demand
2.1. Supply and Demand as Idealtypen
Political economics have been dominated by several intertwined debates, concerning the
role of the market as well as the state, the centrality of the individual or the society and
other topics, creating cleavages that we nowadays label as rightist versus leftist, rich versus
poor or liberal versus socialist. These abstractions from reality provide us with a clear view
of the world, one in which modern society can be classified and categorised as a whole. The
ideals of these different positions represent Idealtypen, as named by the famous sociologist
Max Weber (1864-1920); theoretical extremes, social utopias (or dystopias) beyond the
grasp of reality and social practice (De Jong, 1997:105-106). Because, said Weber, social
reality is incomprehensible without these idealised models, due to its chaotic, versatile and
endless nature. ‘An exact, exhaustive realistic description of reality is impossible’2
(De Jong,
1997:106). Along this line, the concepts devised by economists and political economists as
supply and demand and their mutual differences (and there associated theories) can be –
and will be throughout the rest of this paper – regarded as Idealtypen.
These concepts are a direct result of a specific debate that has focussed on economic
growth of a national market, distinguishing between supporters of public policy aimed at
promoting consumer demand, and those who favour public policy aimed at supporting and
developing the supply side. The most prominent proponents of these theories are John
2
Translated to English from Dutch: ‘Een exacte, uitputtende realistische beschrijving van de werkelijkheid is onmogelijk’ (De
Jong, 1997:106).
6
Maynard Keynes (1883-1946) and Jean-Baptiste Say (1767-1832) respectively. The French
economist and politician Say was convinced of the fact that through the production of each
new good a possibility has been presented to buy other goods (as soon as the produced good
has been sold). Basically, this means that an economy should grow as long as the supply side
of the market expands. Say – and other similar minded classical economists such as Ricardo
and James Mill – argued that direct investments in production growth would better
stimulate an economy than ‘[…] demand for wasteful expenditure of resources, such as
military activity and consumption of luxuries’ (Baumol, 1999:196). The demand for the
increased amount of goods grows alongside the production, since the total purchasing
power of a country is equal to the total amount of value produced (Baumol, 1999:196-197,
Stilwell, 2010:64).
Keynes simplified ‘Say’s Law’ by saying the French economist had in principle
claimed that ‘supply creates demand’ (Baumol, 1999:195). He was also the first one to
oppose to this principle, even though the correctness of this interpretation of the Law has
remained a point of discussion among scholars ever since (see Baumol, 1999). According to
Keynes, not the value of the output produced by the supply side was the drive behind
economic development, yet the combination of public and private demand was what pushed
further economic progress (Stilwell, 2010:265-267). Consequently, in contrast to Say’s
vision, ‘[a] better strategy, Keynes argued, would be to implement policies to expand the
aggregate demand for goods and services […]’ (Stilwell, 2010:265).
2.2 From labour market to a macro-economic vision
Although both theories initially concerned the labour market, they can be generalized to
other market segments as well, including energy and green electricity, as well as be
generalized to come to represent a more general macro-economic vision that is propagated
by the state, as to how the national economy should be governed. To start of with the latter,
a distinction can be made, often roughly explained as between interventionist and non-
interventionist, leftist and rightist and socialist market economists versus neoliberals. Both
the demand and supply theory perceive these macro-economic visions and the policy
instruments that follow from them to be inextricably connected. As a matter of fact, Say is
even considered a neoclassical economist (among such as Adam Smith and Ricardo), while
Keynes is presumed one of the first, and at least the most prominent, to turn against this
neoclassical view of non-intervention and promote state intervention instead (Stilwell,
2010:64-65, 264-265). The reason for this is mainly that the theories as presented in this
7
essay are forms of the above described Idealtypen, not necessarily coherent with the real
world. A suggested discrepancy between macro-economic vision and instruments is
therefore not incorporated in neither supply nor demand theory. It can, however, make a
huge difference if a program is embedded in a more general economic vision, or if this is not
the case. Demand side programs will logically be more effective when implemented in a
general sphere of market intervention by the state. This more leftist associated macro-
economic vision concurs with the program’s aim of supporting the costumers and
strengthening the position of the consumers at the cost of the supply side. The same idea
applies to supply side programs and more neoliberal macro-economic visions. When a
government withholds itself from market intervention and only presents itself as a patron of
boundaries and rules this is in line with a more neoliberal approach. The supply side, being
the one that offers goods, decides on the heterogeneity of the products and the prices asked
for them will have the upper hand in this free market3
. Though this a very crude distinction
between leftist and rightist macro-economic perspectives, they can be seen as the Idealtypen
of which was spoken earlier – different from reality, useful for categorising.
Basically, this means the views of the politics have to been in line with the intentions
of every person involved down to the direct implementer of the policies. As stated by
Bovens and his colleagues, however, formal decisions and factual implementations often
differ significantly (2007:372). Naturally, this is at the expense of the efficiency of the
policies enacted (2007:31).
2.3. From labour market to electricity market
The theories could, however, also be made applicable to other specific economic segments
than the labour market, including the energy sector. For example, as Keynes promoted
government spending in order to increase production (and thus employment) through
higher demand, so can government spending be promoted to develop green electricity
production through higher demand. By amending the theories in this way, several
characteristics of each theory can be selected.
Indeed, the demand and supply theories both feature some characteristics that can
help to ascribe a certain program to a particular theory. In this paper, first the measures that
are incorporated by each program will be examined. Keynes’ theory on demand side
emphasis stated that there are several ways to promote and protect costumer demand. Price
3
Evidently this is subject to a lot of factors, such as which kind of rules they have to compel with and how effective
the government is at imposing these rules. A theoretical distinction can however be made, albeit crudely, as to an
interventionist market where consumers are favoured and a free market in which suppliers will have the upper hand.
8
incentives are the most popular, such as subsidies to decrease the price or tax benefits
(Stilwell, 2010:266). Obviously, the theory being composed during time of macro-economic
crises (the 1930s) throughout the Western world, Keynes’ main solution was the
government as an investor; the government as a demanding actor itself (ibid.)4
.
Naturally, Say’s supply side theory incorporates measures which are diametrically
opposed to Keynes’ promoted policy. When the theory of supply is interpreted as done by
Keynes, i.e. with supply creating demand, several measures would have to be present in a
government program aimed at developing the supply side. Mainly, this would mean
subsidising research projects, new constructions and initial costs of producing. However,
also measures that somehow favour one production chain over the other or policies which
grant more privileges to one business than the other, are indications of a more supply side
approach to that particular production facility/process/chain. Moreover, as with a demand
side approach, the state can act as an actor itself on the market. Yet, despite such sectors as
national security, education and healthcare, this is becoming more and more exceptional (in
the modern West).
Thus, by adjusting the theories of supply and demand to fit the case of green
electricity production and by generalizing them to come to incorporate macro-economic
visions, this paper will demonstrate the explanatory power of these theories for the
difference in green electricity production between Germany and the Netherlands. These
sides – demand versus supply and state interventionist versus non-interventionist policy –
will be constantly referred to in this paper in order to help prove this, as it too will explain to
some extend why some programs are more effective than others – due to a concordance or
discrepancy between the macro-economic view and the policy instrument subsequently
chosen, or between the policy instruments’ intentions and the subsequently chosen
measures.
2.4. Earlier written material
With regard to the significance of green electricity production, a lot has already been written
– too much even to reproduce here. Generally speaking, green electricity is often placed
under the wider notion of climate change and all that comes with it. Even though there are
still a lot of uncertainties about this climate change – ‘is it due to human processes?’, ‘can it
4
Even though this policy was promoted by Keynes, it could be argued that tactic of this government tactic
isn’t merely demand side oriented. Indeed, although the government does clearly increase effective
demand (by acting as a demanding player on the market), the tactic on itself still aims at increasing
supply. However, since increasing effective demand remains the initial focus, the author maintains the
view that this is a characteristic of demand side policies
9
be stopped?’, ‘is the modern Western world responsible?’ – a general feeling exists that it is
indeed contributable to human interference and therefore these interferences should be
mitigated by those responsible. Several nations have already accepted the challenge on a
national level, and negotiations on an international level are ongoing. The topic is on the
agenda, even if it has only been recently put there.
Further political and academic papers have been written on how exactly to reverse
the current development through the help of green electricity. Schreurs (2012) notes, for
instance, that a green technology revolution could break the deadlock on international
climate negotiations, though the revolutions itself would have to come from government
policies and nation-wide tactics. Fouquet (2012), on the other hand, describes situations in
which the market itself provides the incentive for a green transition, with the government
acting merely as the enforcer of the rules. Others, such as Helm (2008), express a more
pessimistic view on future development. He foresees difficulties in breaching the gap
between politics and modern technology, precisely on a topic that attracts mutual interest
(2008:236-237). In addition, the development of green electricity is also believed to be
dependent on the social acceptance in a nation, especially with regard to wind power (see
for instance Wüstenhagen et al., 2007, van der Horst, 2012, van der Horst, 2007, and
Breukers & Wolsink, 2006).
Nevertheless, despite such objections, in the Netherlands and Germany a start has
been made to actually do change the impact the national economy has on climate change.
Several writings have already been published on the energy transition in either country, and
even in relation to the focus on demand- or supply-side policies, yet so far no direct
comparison between the two countries’ programs exists. With respect to the Dutch
situation, a more general background on the Dutch policy is provided by van Wees & van
Rooijen (2004), who give a historical analysis of Dutch energy policy, claiming that for the
last decennia targets have either been vague or ineffective. The voluntary nature of previous
programs has made little contribution to the market share of green electricity in the pas
decennia, even though the demand in the Netherlands is booming due to lucrative tax
benefits (Wees & van Rooijen, 2004:62). This is also one of the most prominent examples of
a study conducted to the green electricity policy of the Netherlands with regard to macro-
economic theories of demand and supply, as can be seen when they label public policy in the
years previous to 2003 as being predominantly demand side biased, while the introduction
of the MEP heralded a new period of supply side promotion (2004:62-63).
10
The same has been done for the German electricity sector, by Wüstenhagen and
Bilharz (2004). They portray a complete different German context, as opposed to the Dutch
situation. They claim that the StrEg (Stromeinspeisungsgesetz), the predecessor of the EEG
(already since 1991), and the first years of the EEG itself (up to 2004), have had a huge
impact on the market share of green electricity in Germany (2004:1687-1689). This in stark
contrast with the development of costumer demand, which back then accounted for only
3.6% of the total green electricity produced (2004:1693).
Now that the context of when the programs came into effect has been set out, this
paper will turn to how the research has been conducted, after which the comparison will
begin.
3. Methodological Approach
3.1. Goals
This paper aims to do two things:
Primarily: Demonstrate that the green electricity programs of the two countries were in
fact biased to supply and demand side promotion respectively (X), and argue
why this would in fact have influenced the (difference between the)
development of these sectors (Y) in the respective economies.
Secondly: Provide some explanation regarding how the difference in effectiveness (X 
Y) might have been catalysed by a lack of internal effectiveness.
Figure 1. Schematic overview main arguments
Thus, while the primary goal of this research is to find out whether a bias exists for each
program and whether that may explain the difference in current development between the
two countries, the secondary goal focuses more on whether there were any discrepancies
within the implementation of the programs between its respective government levels
involved. The research conducted to attain these two goals hence encompasses a
Supply or demand
side promotion of
green electricity
(X)
Effectiveness?
Market share of green
electricity in total
electricity
consumption
(Y)
11
comparative study between the green electricity programs of the German and Dutch
government, over a time-span of eight years (2004-2012).
3.2. Data and cases
As said, the German and Dutch government are chosen because they’re both modern, liberal
economies with an interest in green electricity promotion. As of 2004, they both started (or
greatly amended) their first comprehensive subsidy-project to promote and stimulate green
electricity on a national level. With the Netherlands this meant the introduction of the MEP,
which later on would be followed by its successors the SDE (2008) and the SDE+ (2011).
Also in 2004, the German Bundesrat accepted major changes to the goal and measures of its
four-year old EEG (2000), a program that lives on today.
Both countries have to obey to the rules set out for them by the EU on green
electricity. According to this Union, green electricity is power derived from ‘wind, sun,
geothermic heat, billow, hydropower, biomass, landfill gas, sewage treatment plants and
biogases’5
(EU, 2003). This is the general definition of green electricity used in this paper
and research, and it is similar to the definition used by the Database Eurostat (see Appendix
1). This latter database provides the actual percentages of green electricity produced over
the investigated period relative to the total electricity produced in a country, per year.
The data and documents necessary to study the programs mainly comes from the
governments itself, primarily the reviews of the EEG in Germany (BMU, 2004, 2007, 2011)
and the Energy Reports in the Netherlands (2002, 2005, 2008, 2011). In addition, earlier
research conducted to the programs such as conducted by Wüstenhagen and Bilharz (2006)
and Korteland (2007) will be examined. Finally, supplementary data and information is
retrieved from other public documents (from other public agencies) and more informal
sources (public media)6
.
3.3. Qualitative Comparison
In this research a comparative study was chosen. In order to know which political approach
(on demand or supply) has a greater effect on this percentage, a thorough investigation is
necessary of the policies implemented in both Germany and the Netherlands.
5
Translated to English from Dutch: ‘wind, zon, geothermische warmte, golfslag, getij, waterkracht, biomassa, stortgas, gas van
rioolzuiveringsinstallaties en biogassen’ (EU, 2003)
6
Some of the data sources were not written in English, but in Dutch or German. Both languages didn’t limit the
understanding of the respective texts, as the author of this article has sufficient knowledge of either language.
However, the reviews of the EEG of 2004 and 2007 (published in German) have been acquired in English and only
this latter translation has been used. A thorough comparison between the German and English variants, though, has
negated the concerns about completeness and exactness of the translation.
12
Two ways were possible at the start of this investigation. By selecting specific words
that indicate an emphasis on either a demand-sided approach or supply-sided approach the
researcher would have been able to scan through a range of documents and conclude on the
basis of this more quantitative data whether the policy documents had a bias towards the
one or the other. Several objections can be made with respect to this methodology. To start
of with, it would be difficult to clearly state whether a specific word or concept used refers
explicitly to a single category. Even words as ‘supply’ and ‘demand’ might be analyzed in the
opposite meaning as they originally were used in the text, let alone the fact that most words
are ambiguous in the sense that even when put alone (out of context) they still would be
hard to ascribe to a certain category (e.g. production, economy, policies etc.). Moreover,
German is not a native language of the author and thus to find a perfect equivalent for the
Dutch or English words selected in German would not be without problems and could thus
influence its internal validity.
Therefore a more qualitative approach has been chosen to conduct this research.
‘Qualitative research is a research strategy that usually emphasizes words rather than
quantification in the collection and analysis of data’ (Bryman, 2008:366). As with most
qualitative research, purposive sampling has been used to select the German and Dutch
cases (2008:375). Their similar economies, history and institutional memberships make it
even more notable that the development of their green electricity sector is so different. In
addition, due to the Dutch nature of the researcher and the prominence with which the
German system features in academic and political work, the choice for these two selections
becomes even more self-evident. Furthermore, the second layer of sampling – often present
with purposive sampling – entailed the selection of the programs selected within the
selected countries (ibid.). However, the size of the programs chosen relative to the other
green electricity projects made that for both countries this choice was fairly easy.
Several other aspects of qualitative research have to be regarded as well, before this
paper can elaborate further on the research design. External reliability is not a great concern
with regard to this research. Due to the fact that this research is based on published
documents and other open sources, a similar research would have to come to the same
conclusions. However, these conclusions can only be comparable to the conclusion
presented in this research when ‘[…] there is a good match between [this researcher’s]
observations and the theoretical ideas’ developed here (Bryman, 2008:376). This internal
validity will be ensured by continuously throughout the paper making sure to explicitly
substantiate the choices made during the research – why do investigate some things and
13
omit others – and the conclusions drawn from them. Due to the qualitative nature of this
research and consequently the context dependency of the findings, finally, generalizing
these findings to other economic sectors or different situations will have to be done
cautiously, while constantly being aware of the significant caveats.
The study conducted is primarily made up of qualitative content analysis, a searching-out of
underlying themes in the documents earlier stated (Bryman, 2008:529). The research
design is a comparative case study, carried out of a longer period of time. ‘The key to the
comparative design is its ability to allow the distinguishing characteristics of two or more
cases to act as a springboard for theoretical reflections about contrasting findings’
(2008:61). Through a close reading of both review papers (of Germany and the Netherlands)
not only could be concluded whether the programs itself are demand- or supply-sided, yet
also what the intention of the policymakers was with the programs and in what way they
changed the programs to better meet these expectations. Next to the primary goal, which is
obtained by comparing the states, the secondary goal involved an institutional comparison,
between macro-economic (or political) vision and official implementation (Hague & Harrop,
2007:85-89)7
. These comparisons give the advantage of selecting two different cases with a
very similar background, and thus make it possible to discern (one of) the cause(s) for an
observed difference, while the qualitative aspect of the research creates the possibility to
take into account context and external influences.
3.4. Operationalization
The terms introduced earlier concerning supply and demand promotion and the macro-
economic neoclassic and interventionist views are all concepts which can only be described
by way of marking indicators. As opposed to quantitative research, however, the
investigator should always be aware that within a qualitative research strategy indicators
are ‘sensitizing concepts’, because they merely provide a ‘general sense of reference and
guidance in approaching empirical instances’ (Blumer in Bryman, 2008:373).
As already mentioned in the earlier discussion, two different analytical levels exist to
which the theories of demand and supply side can be applied: macro-economic vision of a
country; and the executed measures of green electricity programs. With regard to the
former, no explicit indicators can be given. It is not within the scope of this research to
7
Since this is only of minor relevance in comparison to the main target of this paper, and due to the lack of space
within this paper, no further detail will be given about institutional comparison. See Hague and Harrop, 2007 for
more information.
14
investigate (based on own observations) whether a government has a more interventionist
or non-interventionist approach. Thus, unfortunately, this will be merely based on external
data and some minor observations8
.
Concerning the measures implemented the research focuses on the indicators as
provided during the discussion about the different theories earlier. Thus, a demand side
approach can be identified by looking if governments try to develop demand in any way
possible. This can range from measures that protect the independency of consumers and
customers of green electricity relative to the supply side, to a measure through which the
government itself acts as a buyer of the green electricity supplied. Following that similar
line, supply side measures would then be anything from financial support to the
establishment of public green electricity facilities. Again, the theories are merely Idealtypen
and it is probable that the programs feature aspects of either theory. Therefore, to fancy
more stringent indicators would only harm the accuracy of the conclusions9
.
3.5. Planning
In order to further enhance the clarity of the paper and be able to stay near the subject and
goal of the paper, this paper is comprised of several interconnected parts, schematically
represented in Figure 2.
Figure 2. Schematic overview paper
8
Without a doubt, this is a loss for this research. Yet, the amount of material written on this subjects, the extremely
wide international scope of the topic (and its debate), and the lack of a clear general consensus make it a research
subject on its own, and, more importantly, makes it impossible to present here a short, clear and objective list of
indicators – in further detail than what has already been said earlier about these themes.
9
Though this would, probably, enhance the external validity of the research.
Macro-economic
vision
Interventionist or
non-interventionist?
Intentions of the
programs
Demand or Supply?
Implemented
measures
Demand or Supply?
Macro-economic
vision and Intentions
in line?
Intentions and
Implemented
measures in line?
1
1
5
3
4
2
Colours:
Primary Focus
Secondary Focus
15
First the macro-economic vision (1) of each country will be examined, distinguishing
between more interventionist approaches and non-interventionist economic politics.
Following, a specific insight will be given into what the intentions of the programs entailed
(2). Where the programs purposed to support the demand side or, on the contrary, to
directly enhance the supply side? The third part of this paper will then compare the results
of the first two parts (macro-economic vision and the program’s intentions) and conclude
whether these two were in line with each other (3). Did the more interventionist state
indeed intend to set up a program that would support the demand side? After the programs
of the respective governments with regard to green electricity have been discussed it will be
possible to look as to whether the actual execution of the programs favoured the demand or
supply side (4). Obviously, then, it would be interesting to see if whoever was intended to be
favoured at the start of the program, did in fact benefit directly from the program at its
implementation (5).
4. Analyses
4.1. Macro-economic vision
As stated, the macro-economic vision of a state is a longer-term perspective on how the
government should behave with regard to the national economy. These visions obviously
change form every time new elections are being held, but usually a general consensus exists
as to whether a more interventionist approach is warranted or if the state should step back
and let the mechanism of the free market take over. In accordance, different states can be
ascribed to each category. Evident examples are the neoliberals in the United States (US)
and the social market economists in states as China and Venezuela. Within Europe the
differences are relatively more subtle, although even here a difference exists between for
instance Great-Britain and continental Europe. These historic patterns are changing though.
Indeed, the Netherlands and Germany too are slowly moving towards a more
neoliberal macro-economic approach, even though they’ll remain interventionist for quite
some time to come. Both feature an extensive welfare state, in which the government
basically guarantees a medical, financial and social minimum way of life. The state doesn’t
only present itself as a patron of civil and propriety rights, yet also intervenes regularly
when (sectors of) the economy are involved with government labelled merit or demerit
goods (for example green electricity and cigarettes), when so-called social values are
16
threatened (e.g. by pollution) or when employment rates are under pressure due to cyclical
fluctuations of the economy. Both governments in fact do still emphasize their commitment
to the social market economies’ history (see for example German Coalition Agreement,
2009), yet, as stated, this trend seems to be coming to an end.
After a period of rising prosperity and government expenses, the respective national
leaders now too stress the responsibility of the society as a whole to organize independently
those things of which the government used to be responsible. In the last coalition agreement
of the Germans, it was said that ‘[t]he freedom to exercise responsibility will serve as the
compass for this centrist coalition’ (German Coalition Agreement, 2009). In concordance, the
Dutch coalition agreement too expressed concern for a government that would be ‘in the
way’ of individual initiatives (Dutch Coalition Agreement, 2012).
The current economic crises have only further limited the states’ possibilities, due to
cutbacks on the national spending and new momentum for (neo-)liberals. Years of
continued increases in government expenses have come to a halt and prominent
personalities publicly question the interventionist approach and its, in their eyes, debt-
ridden legacy.
German’s neoliberal turnaround already started in 2005, with the election of the CDU/CSU,
which meant the leftist era of the SPD under the rule of Gerhard Schröder had come to an
end. Enormous cutbacks on the national expenses, primarily concerning the social welfare
system were a sign of radical change (NRC Handelsblad, 2005). And even though
interventionist measures were still being employed, the government had no choice but to
bring its finances in order before big new projects could be launched.
More or less the same applies to the Netherlands. With the centre-right VVD
emerging as the biggest political party at the elections of 2010, the tone for a more
neoliberal approach was set. In addition, before 2010, already several cutbacks had been
announced and the economic crises gave such momentum to the neoliberals that for the first
time in the history of Dutch politics the neoliberal VVD emerged victorious. In the
Netherlands too the interventionist consensus which had dominated Dutch national politics
around the millennium had slowly conceded to its neoliberal opponents.
Consequently, the macro-economic vision of each country can be described as
interventionist, though it should be kept in mind that the new prevailing political consensus
17
is one of more responsibility for the individual citizen and the state as mediator between
supply and demand.
4.2. Intentions
When looked at the different intentions or goals of the measures, it would seem both
programs are equally supply side oriented. The Dutch government repeatedly mentions the
primary goal is to bring the supply side up to speed with the steadily rising demand for
green electricity (e.g. Energy Report, 2005:35). Especially the MEP, with the costs being
borne by the consumers, was clearly an intention to stimulate the supply side. The former
tax benefits for consumers were replaced by direct investments in the production chain to
enhance production and new research. As the state perceived it, the coming of the SDE and
the SDE+, and the first-come, first-served principle would only increase the competitiveness
of the sector with regard to electricity produced from fossil resources.
The German government wielded a similar reasoning. The goals of the EEG in 2000
were still indefinite, as they intended to substantially increase the production of green
electricity, ‘in order at least to double the share of renewable energy sources in total energy
consumption by the year 2010’ (BMU, 2000)10
. In 2004, these targets had been made more
specific, including promoting development of renewable energy technologies and increasing
the share of renewable energy sources to at least 12.5% of electricity supply by 2010 and at
least 20% by 2020 (Wüstenhagen & Bilharz, 2006:1686). By looking primarily at the
production percentages of green electricity in comparison to the total amount of electricity
produced, it evidently targeted for a further development of green electricity production. As
stated in 2004, ‘[t]he objective of the Renewable Energy Sources Act is to increase the share
of total power supply which is derived from renewables [by improving] the overall
framework for feeding in, transmitting and distributing electricity from renewable sources’
(BMU, 2004).
4.3. Vision and Intentions in accordance?
When looked at the macro-economic visions of the countries and the intentions that were
presented specific to the green electricity topic, only slight discrepancies can be highlighted,
mainly concerning the German case.
The Dutch macro-economic vision seems to be in accordance with its intentions at
the start of the MEP and its successors. As stated, the MEP was intended to thoroughly
support the supply side through a substantive and elaborate program of subsidies. The
10
Which was 6.1% in 2000 (Database Eurostat).
18
interventionist character of these subsidies can be said to be in line with the more leftist
legacy of Dutch history, while the emphasis on the supply side as the main beneficiary seems
to be in agreement with the neoliberal uprising of the 2000s. Only minor remarks can be
made about the SDE, as it transferred the responsibility of the costs of the program back to
the national treasury (instead of levying the electricity bill of consumers). This presented a
more interventionist step as it too transferred responsibility of green electricity to the
government instead of the consumers11
. This was already made undone, however, with the
coming of the SDE+ in 2011 (Energy Report, 2011:25). Moreover, the first-come, first served
principle too showed a preference for market responsibility as opposed to government
intervention.
As for the German situation, at first it would seem the intentions of the EEG were in
line with the general consensus of interventionist policies. The program’s goals focussed
primarily on supporting the supply side through direct investments and compensations. The
interventionist character of the country was thus applied to the green electricity sector,
partly due to the fact that the program was initially started in 2000 – still during a period of
interventionist consensus. However, as opposed to the Dutch situation, the non-
interventionist political idea that settled following 2005 was never reflected in the programs
goals after that period. Neither during the 2007, nor after the 2011 reviews was a more
market oriented plan proposed. Sure, due to the fact that the costs of the program lay
continuously with the consumers and the amount of compensation was lowered annually
after 2004 already a certain view of market responsibility was introduced, yet no further
policies underlined these intentions. The program too is still very elaborate and therefore
increasingly expensive (Site NOS). The current debate about these costs is a signal that
something has to happen to bring the non-interventionist view of the national politics back
in line with the interventionist approach on the German power market – probably by
altering the latter.
In short, the misalignment of the German case might have affected its effectiveness,
as its move from interventionist to non-interventionist macro-economic vision wasn’t
reflected in its targets set for the EEG. The Dutch case seems to be more congruent, as both
the macro-economic vision and the intentions of the programs expressed an increasing
importance of non-intervention, supply-sided policies.
11
The costs of the program require special attention though, since technically speaking the government is paid for by
its citizens as well. However, the difference obviously is that when the consumers pay, they in proportion to what
they consume, i.e. those who use more, pay more. The transfer of the costs thus only meant an advantage for the
large consumers, and it made no difference whatsoever for the supply side.
19
4.4. Programs
By providing more detail of the Dutch and German programs and the measures they
incorporated, it is possible to compare the intentions of the programs with the measures
that were ultimately implemented as a result thereof.
The Dutch policy, from 2004 onwards, consisted of three overlapping programs. As
said above, the MEP replaced the tax-benefits the prior REB had granted to consumers until
then. Demand had steadily increased, without an equivalent growth in supply. The MEP was
to bring the production up to level, by compensating energy producers for the unprofitable
investments that green energy production demanded (Dutch Audit Office, 2007:9). As
stated, the goal of the first program was clear: supply side stimulation.
Several primary measures were introduced with the coming of the MEP. The
producers would get a direct compensation for their investments. The amount necessary to
be competitive with conventional energy prices (i.e. the difference between market price
and cost price) was guaranteed by the state. Moreover, the compensation was set for the
following ten years after production had been initiated, based on expected market price
fluctuations and changing (usually declining) production costs. The costs of the program
were paid for by the consumers of electricity, through an extra levy on the electricity bill
(Korteland et al., 2007:308).
The MEP, however, soon came to an end as costs for the program were skyrocketing.
At first, the costs could be paid for by extra levies on the electricity bills of consumers.
Virtually, this meant the program was open-ended – anyone could apply for the program
and be compensated (Dutch Audit Office, 2007:14). To put a halt to this, the government
eventually did pay the subsidies from the states’ funds, in order to maximize the number of
applicants that would be granted compensation. Still, over 2005 and 2006 the costs were too
high to maintain the program, which thus, due to its own success, was terminated by the
Ministry of Economics at the end of 2006 (ibid.)12
.
As of April 2008, the SDE (Stimuleringsregeling Duurzame Energieproductie) had
come into existence (Energy Report, 2008:72). This program had the same objectives as the
MEP, though several new measures were introduced. As at the end of the MEP program, the
costs of the SDE were included in the national budget and were thus perceived as regular
subsidies. This was primarily done in order to put a maximum to the amount of
compensations being able to apply, with a new first-come, first-served policy. Furthermore,
the new program only supported new facilities, through which the government hoped to
12
The payments that had been promised up to that point (the 10-year guarantee) to the several production facilities
did, of course, continue.
20
spark new incentives for green electricity production. In addition, the compensation prices
were set afterwards, meaning the investor could only hope his compensation would be
enough to cover his expenses. For the government, this meant more flexibility and more
appropriate prices in accordance with current market and conventional electricity prices,
instead of the ten-year agreements with set prices (Dutch Audit Office, 2010:11). Finally,
renewable gas and electricity production through heat were also included in the program.
To further lower the costs of the program, the SDE+ was introduced in 2011. As
apparent from its title, it too merely contained minor changes in comparison to its
predecessor. A new competitive element was incorporated, which meant the available
budgets were no longer set per technology (wind, solar etc), yet one grand budget included
all technologies, which then had to compete amongst each other for subsidy (Energy Report,
2011:25). This way, the state assumed, the cheapest technology would develop the most.
Furthermore, in addition to the first-come, first served principle, the Ministry of Economics
introduced a phased opening of the available budget. This meant that those applying in the
beginning would be certain of available budget, yet did get a lower compensation rate. With
the beginning of each new phase, the budget would decrease and thus the uncertainty about
getting the application approved would decrease along with it, even tough approved
applications would get an increasingly higher compensation (Ministry of Economic Affairs,
2010). Finally, the costs of the program would in the future again be transferred to the
consumers, by re-introducing the feed-in tariff – a levy on the electricity bill – in annual
phases, starting in 2013 (Energy Report, 2011:25).
With regard to the German policy, the EEG is the only program that was active in the period
under investigation. The EEG came into existence in 2000 and, despite major adjustments in
2004, still is the primary program for the promotion of green electricity. The EEG consists of
a few main measures to ensure these targets can be met. First it makes sure that every
producer of green electricity can automatically be connected to the electricity net, so that its
electricity can be fed in to the German electricity market (BMU, 2004). This purchase
obligation (of the local grid operator) not only made that any supplier, no matter how small,
could be connected to the public grid, it even provided priority for green electricity over
electricity from conventional resources (BMU, 2004, Wüstenhagen & Bilharz, 2006:1685).
Second, similar to the Dutch system, every German producer receives a guaranteed
minimum price per kWh generated. Contrary, though, to the Dutch system are the
agreements the producer makes with the grid operator, that often last for at least twenty
21
years13
(BMU, 2004). A third attribution was made with the coming of a ‘[…] nationwide cost
settlement system to balance out regional disparities’ (Wüstenhagen & Bilharz, 2006:1685).
This meant that the costs arising from the purchase of green electricity are divided equally
over German grid operators, and thus a grid operator managing a facility in an area with
relatively a lot of green electricity facilities, doesn’t necessarily pay more than his colleague
in an area with few green electricity suppliers14
. Furthermore, the respective amount that a
green electricity producer receives as compensation decreases every year, because the
German government expects higher prices for conventional electricity (due to higher oil and
gas prices) and decreasing costs for green electricity (due to improving technology) to
reduce the compensation needed (BMU, 2004). Finally, the costs of the program are borne
by the user, as an extra levy on its electricity bill.
4.5. Measures implemented
The question remains as to whether the programs, when reviewing the measures
implemented by each of them, tend to favour support for the supply or the demand side. The
Dutch programs seem to promote a more supply side orientation. Indeed, as mentioned
above, their goals all more or less explicitly aimed for the growth of production through
direct subsidies. When a closer look is given to the implementation of the programs, it
appears the subsidies, which compensate for the difference between the cost of production
of green electricity and the price of conventional electricity on the market, actually do only
benefit the producers. No further benefit is given to the demand side15
. Moreover, by letting
the SDE only apply to new producing facilities, the effect of the program could only be that
more suppliers entered the market. These direct investments, alongside research subsidies
and more spatial planning – for example where to put windmills – can all be seen as supply
side measures.
The German case is less straightforward. In addition to the minimum prices that
were guaranteed – i.e. the same measures also incorporated in the Dutch policy instruments
– the EEG also introduced a purchase obligation. Ultimately, this meant that no green
electricity supplier had to worry about the demand for its product. As long as it produced
13
Until 2004, all green technologies received agreements up to twenty years. With the amendments made in 2004,
agreements made with facilities using large hydropower, biomass or several other green gasses, were limited to a
lifespan of fifteen years (Wüstenhagen & Bilharz, 2006:1685).
14
This is important, because once electricity has been fed into the grid, it can be distributed all over Germany, while,
if this settlement system wasn’t present, the costs of this feeding-in would primarily lie with the local grid operator
who purchased the green electricity in the first place.
15
It could, however, be argued that the liberalisation of the energy market that took place in 2004, which replaced a
system in which costumers could only switch caterer when they switched to green electricity, in fact disadvantaged
the suppliers. Indeed, they saw this advantage erode with the opening of the market, when costumers could also
switch to providers of conventional electricity. More on this later on in this paper.
22
efficiently enough to let the compensation – which was set for twenty years – cover its
expenses, it would always remain profitable. The EEG, by way of minimum prices and a
purchase obligation, virtually simulated demand. Basically this means, by way of simulating
demand and thus providing a limitless market for green electricity, the German government
has chosen to strengthen production through demand. In other words, the EEG is a demand
side biased program and thus can be seen as a Keynesian tactic. The focus is on elevating
demand and suspecting supply will pick up concordantly.
4.6. Intentions and Measures in accordance?
As with the macro-economic vision and the intentions, it might be helpful to look closely at
the relationship between the intentions of the programs and the execution thereof, in order
to gain information as to why the effects of the different programs have been so different.
The internal alignment of the Dutch case, as with the macro-economic vision and the
intentions, seems to be in with respect to the intentions and measures of the programs. The
intentions were to directly support the supply side. By compensating the initial costs of
green electricity produced the program in effect made green electricity competitive with
power from more conventional resources. The supply side of green electricity was thus
aided by direct subsidies and investments that supported the start of new facilities and
provided the funds for further technical innovations.
This alignment sees to be off with regard to the German situation. Even though the
intentions of the program are unambiguous in their claim to be supply-sided, this is
incongruent with the implemented measures of the program. As explained, these only effect
the production of green electricity through an increase in demand for such power. The
purchase obligation is thus a demand-sided approach that assumes supply will follow
accordingly when demand changes.
As with the earlier institutional comparison of macro-economic vision and
intentions, it also seems that the intentions and the implemented measures of the German
electricity sector are off when looked at its main proponent, the EEG. This consequently
means the implemented measures are congruent with the macro-economic visions of the
German government. With respect to the Dutch situation, despite minor discrepancies, a
general consensus between all involved seems to be present, whereby the macro-economic
vision of the government and its change is directly translated to a proportional change in
implemented measures.
23
5. Internal effectiveness
5.1. Secondary Target
When an overall comparison is made between the German green electricity program EEG
and the Dutch programs, their internal effectiveness, and the effect this effectiveness has
had on the green electricity production of their respective economies, i.e. the secondary
target of this paper, several noticeable differences become apparent.
While the German growth rate has been fairly constant throughout the years
investigated, the intertwined Dutch programs did leave their mark on the Dutch electricity
development. Although development was lacking prior to 2004, the coming of the MEP and
thus the first supply-sided measure did sharply increase production and consumption of
green electricity (see Appendix 1 for a graphical overview). Immediately after the MEP was
terminated in 2006 this growth declined, until consumption actually decreased. This fall,
even though the SDE did try a catch-up from 2008 onwards could be argued as the moment
when the Netherlands lost too much ground to catch-up with their Eastern neighbouring
economy16
.
This paper can be more conclusive about whether the internal effectiveness (i.e. the
alignment of the vision, intentions and measures) influenced the final effect the programs
had. Strikingly enough, even though it would be expected otherwise, it is the German case
that reflects ambiguity and incongruence between the different government levels. Not only
do the national political visions seem far from aligned to the intentions of the green
electricity sector, these visions subsequently are not paralleled with the measures
ultimately incorporated. When the German case is laid side by side to the final green
electricity consumption, it can be concluded that the (in)congruency in views and
implementation is not a determining factor in explaining the difference in green electricity
production between Germany and the Netherlands.
16
This becomes even more apparent when one looks at the growth rates from 2000 to 2005. During this period,
both countries’ green electricity increased its share of total electricity consumption equally with approximately four
percentage points.
24
6. Final Remarks
6.1. Conclusion – Primary Target
This paper has shown that there is indeed a difference in green electricity programs
between Germany and the Netherlands following from a demand and supply distinction. It
has demonstrated that, even though the initial intentions of the German government were
different, the macro-economic vision as well as the implemented measures were demand-
sided. The German program EEG was in line with Keynes’ theory of ‘demand creates supply’,
as it simulated demand by implementing a purchase obligation for the grid operators. The
Dutch case presents a model more in line with Say’s ‘supply creates demand’ suggestion. Not
only is the macro-economic vision of the national politics in concordance with this theory,
the intentions and ultimately implemented measures reflected this same line of thought. The
MEP, SDE and SDE+ were all initiated to strengthen and compensate the producers of green
electricity through price-levelling and market liberalisation, with no further demand side
policies involved.
The question remains than, if this demand side orientation has in fact supported the
green electricity production in Germany, just as the supply side orientation of the Dutch
programs might have tackled its progress in an early stage. Without a doubt, this focus is a
factor of influence. The height of the government expenses on the programs, the size of
these programs and the clear difference in policies between Germany and the Netherlands
all add to the conclusion that the supply side orientation in the Netherlands and the demand
side orientation in Germany contributed to the difference in results currently observed
between the two.
A final observation can be suggested. The demand side approach of the Germans was
in addition to the same supply side measures the Dutch too implemented. With the coming
of the SDE+, the difference between the German and Dutch supply-sided measures comes
down to only slight differences. The compensation granted to the suppliers is more or less
identical to the Dutch system – even though for the Germans this compensation could be
granted to even the smallest supplier and for a longer period of time. The Dutch, already
having a booming demand for green electricity, never implemented a purchase obligation
and thus refrained from using demand side promotion as a policy tool. In this light, it could
be argued the Germans have introduced a more complete and encompassing program,
including demand-side policies – which even formed the back bone of the program.
25
6.2. Discussion
Several remarks can be made here already that temper the significance of this research. The
main one being, of course, that this study was unable to prove directly how important this
supply/demand side distinction was to explaining the effect of the programs, relative to
other explanations. As constantly stated throughout this paper, the bias towards a particular
approach is merely one of the possible determinants for the difference in green electricity
development currently perceived. Arguably, the public awareness of the climate problem
itself is a contributing character, as is the current economic status of the country or the
situation in other energy segments – especially the dismissal of nuclear plans in Germany is
a point of consideration here. Furthermore, studies conducted to investigate the actual
implementation effects might find that the effects of the program were completely opposite
to what was expected from the measures investigated in this paper. All these possibilities –
and others – were however not within the reach of this paper, due to the limited time and
space available for this research. This does not mean these arguments do not deserve
further enquiry, yet rather that this paper can be seen as an initial starting point for further
research in a field so important as green electricity development.
Additional research should also provide more clarity on the significance of other
policies, besides the main programs investigated here. When these smaller programs would
have been incorporated in this research a modest alteration of the conclusion might have
been expected, because these instruments might be aimed at countervailing the bias in
policy approach the main programs caused. It is unlikely, though, that these problems would
have negated the main findings of this research, due to the stated importance of the main
programs relative to these minor ones. These remarks will hopefully trigger others to
investigate policy decisions in relation to green developments, due to its increasing public
relevance and ongoing debate.
26
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(laatst geraadpleegd 28-01-2012)
Site Energieraad
‘Rapport: ‘Investeren groene stroom loont niet’’, 09-06-2010
http://www.energieraad.nl/newsitem.asp?pageid=23210
(laatst geraadpleegd 28-01-2012)
Site NOS
‘Hoge stroomprijzen Duitsland vanwege Energiewende’, 02-11-2012,
http://nos.nl/audio/435957-hoge-stroomprijzen-duitsland-vanwege-
energiewende.html.html
(laatst geraadpleegd 28-01-2012)
Site NRC Handelsblad
‘Regeerakkoord Duitsland klaar’, 12-11-2005
http://vorige.nrc.nl/dossiers/bondsdagverkiezingen_duitsland/nieuws/article1641
184.ece
(laatst geraadpleegd 28-01-2012)
Stilwell, F. (2011)
Political Economy: The contest of economic ideas, Oxford: Oxford University Press
31
Wüstenhagen, R. & Bilharz, M. (2006)
Green energy market development in Germany: effective public policy and emerging
customer demand, Energy Policy, Volume 34, Issue 13, p. 1681-1696
Wüstenhagen, R., Wolsink, M. & Bürer, M.J. (2007)
Social acceptance of renewable energy innovation: An introduction to the concept,
Energy Policy, Volume 35, Issue 5, p. 2683–2691
Van der Horst, M. (2007)
NIMBY or not? Exploring the relevance of location and the politics of
voiced opinions in renewable energy siting controversies, Energy Policy, Volume 35,
Issue 5, p. 2705-2714
Van der Horst, M. (2012)
The research agenda on social acceptance of distributed generation in smart
grids: Renewable as common pool resources, Energy Policy, Volume 16, Issue 1, p.
822–835
32
Appendix
Appendix 1.
Source: Eurostat Database
http://epp.eurostat.ec.europa.eu/tgm/graph.do?
tab=graph&plugin=1&pcode=tsdcc330&language=en&toolbox=sort
Description: This indicator is the ratio between the electricity produced from renewable
energy sources and the gross national electricity consumption for a given
calendar year. It measures the contribution of electricity produced from
renewable energy sources to the national electricity consumption. Electricity
produced from renewable energy sources comprises the electricity
generation from hydro plants (excluding pumping), wind, solar, geothermal
33
and electricity from biomass/wastes. Gross national electricity consumption
comprises the total gross national electricity generation from all fuels
(including autoproduction), plus electricity imports, minus exports.
34

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BachelorThesis 2013 MT Huynink

  • 1. Demand versus Supply side promotion A qualitative comparison of green electricity programs in Germany and the Netherlands Author: Matthias T. Huynink Thesis supervisor: Rosa M. Sanchez 2nd reader: Jurgen van der Heijden Assignment: Bachelorthesis Citizens in Europe Final Version: 29/01/2013 Pages: 33
  • 2. Table of Contents 1. Introduction------------------------------------------------------------------------------------------3 - 5 2. Supply versus Demand--------------------------------------------------------------------------5 - 10 2.1. Supply and Demand as Idealtypen 5 – 6 2.2. From labour market to macro-economic vision 6 - 7 2.3. From labour market to electricity market 7 – 8 2.4. Earlier written material 8 - 10 3. Methodological Approach---------------------------------------------------------------------10 - 15 3.1. Goals 10 - 11 > Figure 1. Schematic overview main arguments 10 3.2. Data and Cases 11 3.3. Qualitative Comparison 11 - 13 3.4. Operationalization 13 - 14 3.5. Planning 14 - 15 > Figure 2. Schematic overview paper 14 4. Analyses-------------------------------------------------------------------------------------------15 - 23 4.1. Macro-economic vision 15 – 17 4.2. Intentions of the programs 17 4.3. Visions and intentions in accordance? 17 - 18 4.4. Programs 19 - 21 4.5. Measures implemented 21 - 22 4.6. Intentions and measures in accordance? 22 - 23 5. Internal Effectiveness--------------------------------------------------------------------------------23 5.1. Secondary target 23 6. Final Remarks------------------------------------------------------------------------------------24 - 25 6.1. Conclusion – Primary target 24 6.2. Discussion 25 References-------------------------------------------------------------------------------------------26 - 31 2
  • 4. 1. Introduction The seaquake and following tsunami that flooded and destroyed parts of Fukushima, Japan, has given new momentum to a decennia-old discussion about the possibilities of nuclear energy as a stable alternative to fossil energy. The nuclear disaster triggered several states to postpone construction plans of new nuclear facilities or even to close down existing ones. New alternatives have been and still are being introduced to fill in the gap that nuclear energy has left for them, as the alternative to the depleting fossil energy resources. Furthermore, new emphasis has been placed, globally and nationally, on the development of existing alternatives. The European Union (EU) already before the disaster pressed its member countries to invest in electricity – being the biggest energy consumer – based on solar, wind and/or thermal power. With strict targets set, European leaders all over are creating and implementing new policies, laws and national targets. Two such countries are Germany and the Netherlands. Both modern economies with a fairly stable political system that have, each in their own way, tried to achieve these targets. Despite the similarities between the two countries, a difference appears in results achieved thus far with regard to green electricity development. Germany, a leading example around the world when it comes to green energy overall, consumed 16.9% of its total electricity production from renewable sources in 2010, while in that same year the Dutch produced 9.2% green energy as a percentage of the total energy production (Database, Eurostat). Especially when this is compared to the targets set by the EU for both countries – 9% for the Netherlands and 12% for Germany – the difference in development between both countries becomes evident. Moreover, while the German annual percentage increased significantly the last two years, in the Netherlands this development has been modest. Critics have dismissed the Dutch approach as being one of the worst in Europe (Site Energieraad). The German government, in contrast, is becoming ever more ambitious in its targets and goals (Site De DrentseMonden). This paper will present the research conducted on the reason for this difference in results, which is to answer the main question: Can the difference in results achieved by German and Dutch energy policy be explained by the content of the policies implemented in these two countries? For both countries only the main programs will be examined. With regard to the Dutch policy instruments this entails the MEP (Subsidieregeling Milieukwaliteit Elektriciteitsproductie), which came to life in 2004 to stimulate the production of green electricity and expand its national market share further from its then 4.4%. Due to its own 4
  • 5. success, however, it eventually became financially untenable and was consequently terminated in 2006. Its successor, the SDE (Stimulering Duurzame Energieproductie), was introduced in 2008 and was further extended to include energy from heat and gas in 2011 with the coming of the SDE+. The German main equivalent of the policy instrument implemented to further develop the green electricity market also came into existence in 2004 – at least in its current form. The EEG (Ernuerbare-Energien Gesetz), as it was called, already existed since 2000, yet major amendments have been made during its review in 2004. As stated then, the objective of the EEG was to ‘[…] increase the share of total power supply which is derived from renewables to at least 12.5 per cent by 2010 and at least 20 per cent by 2020’ (BMU, 2004), which back then was still only 9.2% of gross total consumption (Database Eurostat). Real development in green energy production had yet to begin, as the topic had only recently made it to the national agenda. This paper will try to answer the research question by focussing specifically on whether the above mentioned programs were intended to either support the supply side or the demand side of green electricity, and if they did in fact succeed in supporting one or the other. Both in the academic world as in the political arena the debate concerning which approach provides the greater effect has been conducted, concerning green energy as well as other topics. However, as so often in practice, most programs will not be merely one or the other, since no government is limited to only one policy instrument. Still, by looking into detail at the different programs initiated by the German and Dutch government, this paper does reveal a certain general pattern in which the respective governments are biased to either demand or supply side promotion. By answering this question this paper expects not only to add to the debate between proponents and opponents about demand or supply side promotion, yet also to provide new insights into how the development of green electricity can be accelerated. Especially when one knows which kinds of reservations in the national budget are made for the support of green electricity (into billions of Euros per year)1 , the relevance of the topic and this research would seem even more evident. A small remark already has to be made here, though, since this paper does not aim at establishing government policy as the sole influence on green electricity development, nor will it provide an evaluation of which program works better where. Only minor attention will be given to internal effectiveness of the policy making process and its effect on the green electricity development. Primarily this paper 1 See for instance Energy Report 2011 and BMU, 2011. 5
  • 6. seeks to conclude whether the supply or demand focus of policy instruments is a factor of influence. This paper will in fact demonstrate that there is in fact a particular focus of the programs on either demand or supply side policies and that this might have (though not solemnly) influenced the development of green energy production in both countries. With regard to the internal effectiveness of the policy making process, no direct link could be established between this effectiveness and the green electricity development. After elaborating more on the theories of demand and supply (and its indicators), the research design and earlier research conducted, it will do this by looking into more detail to what the macro-economic vision of both governments was; how these were in line with the intentions of the programs; and whether the actual included and implemented measures logically followed from these intentions. 2. Supply versus Demand 2.1. Supply and Demand as Idealtypen Political economics have been dominated by several intertwined debates, concerning the role of the market as well as the state, the centrality of the individual or the society and other topics, creating cleavages that we nowadays label as rightist versus leftist, rich versus poor or liberal versus socialist. These abstractions from reality provide us with a clear view of the world, one in which modern society can be classified and categorised as a whole. The ideals of these different positions represent Idealtypen, as named by the famous sociologist Max Weber (1864-1920); theoretical extremes, social utopias (or dystopias) beyond the grasp of reality and social practice (De Jong, 1997:105-106). Because, said Weber, social reality is incomprehensible without these idealised models, due to its chaotic, versatile and endless nature. ‘An exact, exhaustive realistic description of reality is impossible’2 (De Jong, 1997:106). Along this line, the concepts devised by economists and political economists as supply and demand and their mutual differences (and there associated theories) can be – and will be throughout the rest of this paper – regarded as Idealtypen. These concepts are a direct result of a specific debate that has focussed on economic growth of a national market, distinguishing between supporters of public policy aimed at promoting consumer demand, and those who favour public policy aimed at supporting and developing the supply side. The most prominent proponents of these theories are John 2 Translated to English from Dutch: ‘Een exacte, uitputtende realistische beschrijving van de werkelijkheid is onmogelijk’ (De Jong, 1997:106). 6
  • 7. Maynard Keynes (1883-1946) and Jean-Baptiste Say (1767-1832) respectively. The French economist and politician Say was convinced of the fact that through the production of each new good a possibility has been presented to buy other goods (as soon as the produced good has been sold). Basically, this means that an economy should grow as long as the supply side of the market expands. Say – and other similar minded classical economists such as Ricardo and James Mill – argued that direct investments in production growth would better stimulate an economy than ‘[…] demand for wasteful expenditure of resources, such as military activity and consumption of luxuries’ (Baumol, 1999:196). The demand for the increased amount of goods grows alongside the production, since the total purchasing power of a country is equal to the total amount of value produced (Baumol, 1999:196-197, Stilwell, 2010:64). Keynes simplified ‘Say’s Law’ by saying the French economist had in principle claimed that ‘supply creates demand’ (Baumol, 1999:195). He was also the first one to oppose to this principle, even though the correctness of this interpretation of the Law has remained a point of discussion among scholars ever since (see Baumol, 1999). According to Keynes, not the value of the output produced by the supply side was the drive behind economic development, yet the combination of public and private demand was what pushed further economic progress (Stilwell, 2010:265-267). Consequently, in contrast to Say’s vision, ‘[a] better strategy, Keynes argued, would be to implement policies to expand the aggregate demand for goods and services […]’ (Stilwell, 2010:265). 2.2 From labour market to a macro-economic vision Although both theories initially concerned the labour market, they can be generalized to other market segments as well, including energy and green electricity, as well as be generalized to come to represent a more general macro-economic vision that is propagated by the state, as to how the national economy should be governed. To start of with the latter, a distinction can be made, often roughly explained as between interventionist and non- interventionist, leftist and rightist and socialist market economists versus neoliberals. Both the demand and supply theory perceive these macro-economic visions and the policy instruments that follow from them to be inextricably connected. As a matter of fact, Say is even considered a neoclassical economist (among such as Adam Smith and Ricardo), while Keynes is presumed one of the first, and at least the most prominent, to turn against this neoclassical view of non-intervention and promote state intervention instead (Stilwell, 2010:64-65, 264-265). The reason for this is mainly that the theories as presented in this 7
  • 8. essay are forms of the above described Idealtypen, not necessarily coherent with the real world. A suggested discrepancy between macro-economic vision and instruments is therefore not incorporated in neither supply nor demand theory. It can, however, make a huge difference if a program is embedded in a more general economic vision, or if this is not the case. Demand side programs will logically be more effective when implemented in a general sphere of market intervention by the state. This more leftist associated macro- economic vision concurs with the program’s aim of supporting the costumers and strengthening the position of the consumers at the cost of the supply side. The same idea applies to supply side programs and more neoliberal macro-economic visions. When a government withholds itself from market intervention and only presents itself as a patron of boundaries and rules this is in line with a more neoliberal approach. The supply side, being the one that offers goods, decides on the heterogeneity of the products and the prices asked for them will have the upper hand in this free market3 . Though this a very crude distinction between leftist and rightist macro-economic perspectives, they can be seen as the Idealtypen of which was spoken earlier – different from reality, useful for categorising. Basically, this means the views of the politics have to been in line with the intentions of every person involved down to the direct implementer of the policies. As stated by Bovens and his colleagues, however, formal decisions and factual implementations often differ significantly (2007:372). Naturally, this is at the expense of the efficiency of the policies enacted (2007:31). 2.3. From labour market to electricity market The theories could, however, also be made applicable to other specific economic segments than the labour market, including the energy sector. For example, as Keynes promoted government spending in order to increase production (and thus employment) through higher demand, so can government spending be promoted to develop green electricity production through higher demand. By amending the theories in this way, several characteristics of each theory can be selected. Indeed, the demand and supply theories both feature some characteristics that can help to ascribe a certain program to a particular theory. In this paper, first the measures that are incorporated by each program will be examined. Keynes’ theory on demand side emphasis stated that there are several ways to promote and protect costumer demand. Price 3 Evidently this is subject to a lot of factors, such as which kind of rules they have to compel with and how effective the government is at imposing these rules. A theoretical distinction can however be made, albeit crudely, as to an interventionist market where consumers are favoured and a free market in which suppliers will have the upper hand. 8
  • 9. incentives are the most popular, such as subsidies to decrease the price or tax benefits (Stilwell, 2010:266). Obviously, the theory being composed during time of macro-economic crises (the 1930s) throughout the Western world, Keynes’ main solution was the government as an investor; the government as a demanding actor itself (ibid.)4 . Naturally, Say’s supply side theory incorporates measures which are diametrically opposed to Keynes’ promoted policy. When the theory of supply is interpreted as done by Keynes, i.e. with supply creating demand, several measures would have to be present in a government program aimed at developing the supply side. Mainly, this would mean subsidising research projects, new constructions and initial costs of producing. However, also measures that somehow favour one production chain over the other or policies which grant more privileges to one business than the other, are indications of a more supply side approach to that particular production facility/process/chain. Moreover, as with a demand side approach, the state can act as an actor itself on the market. Yet, despite such sectors as national security, education and healthcare, this is becoming more and more exceptional (in the modern West). Thus, by adjusting the theories of supply and demand to fit the case of green electricity production and by generalizing them to come to incorporate macro-economic visions, this paper will demonstrate the explanatory power of these theories for the difference in green electricity production between Germany and the Netherlands. These sides – demand versus supply and state interventionist versus non-interventionist policy – will be constantly referred to in this paper in order to help prove this, as it too will explain to some extend why some programs are more effective than others – due to a concordance or discrepancy between the macro-economic view and the policy instrument subsequently chosen, or between the policy instruments’ intentions and the subsequently chosen measures. 2.4. Earlier written material With regard to the significance of green electricity production, a lot has already been written – too much even to reproduce here. Generally speaking, green electricity is often placed under the wider notion of climate change and all that comes with it. Even though there are still a lot of uncertainties about this climate change – ‘is it due to human processes?’, ‘can it 4 Even though this policy was promoted by Keynes, it could be argued that tactic of this government tactic isn’t merely demand side oriented. Indeed, although the government does clearly increase effective demand (by acting as a demanding player on the market), the tactic on itself still aims at increasing supply. However, since increasing effective demand remains the initial focus, the author maintains the view that this is a characteristic of demand side policies 9
  • 10. be stopped?’, ‘is the modern Western world responsible?’ – a general feeling exists that it is indeed contributable to human interference and therefore these interferences should be mitigated by those responsible. Several nations have already accepted the challenge on a national level, and negotiations on an international level are ongoing. The topic is on the agenda, even if it has only been recently put there. Further political and academic papers have been written on how exactly to reverse the current development through the help of green electricity. Schreurs (2012) notes, for instance, that a green technology revolution could break the deadlock on international climate negotiations, though the revolutions itself would have to come from government policies and nation-wide tactics. Fouquet (2012), on the other hand, describes situations in which the market itself provides the incentive for a green transition, with the government acting merely as the enforcer of the rules. Others, such as Helm (2008), express a more pessimistic view on future development. He foresees difficulties in breaching the gap between politics and modern technology, precisely on a topic that attracts mutual interest (2008:236-237). In addition, the development of green electricity is also believed to be dependent on the social acceptance in a nation, especially with regard to wind power (see for instance Wüstenhagen et al., 2007, van der Horst, 2012, van der Horst, 2007, and Breukers & Wolsink, 2006). Nevertheless, despite such objections, in the Netherlands and Germany a start has been made to actually do change the impact the national economy has on climate change. Several writings have already been published on the energy transition in either country, and even in relation to the focus on demand- or supply-side policies, yet so far no direct comparison between the two countries’ programs exists. With respect to the Dutch situation, a more general background on the Dutch policy is provided by van Wees & van Rooijen (2004), who give a historical analysis of Dutch energy policy, claiming that for the last decennia targets have either been vague or ineffective. The voluntary nature of previous programs has made little contribution to the market share of green electricity in the pas decennia, even though the demand in the Netherlands is booming due to lucrative tax benefits (Wees & van Rooijen, 2004:62). This is also one of the most prominent examples of a study conducted to the green electricity policy of the Netherlands with regard to macro- economic theories of demand and supply, as can be seen when they label public policy in the years previous to 2003 as being predominantly demand side biased, while the introduction of the MEP heralded a new period of supply side promotion (2004:62-63). 10
  • 11. The same has been done for the German electricity sector, by Wüstenhagen and Bilharz (2004). They portray a complete different German context, as opposed to the Dutch situation. They claim that the StrEg (Stromeinspeisungsgesetz), the predecessor of the EEG (already since 1991), and the first years of the EEG itself (up to 2004), have had a huge impact on the market share of green electricity in Germany (2004:1687-1689). This in stark contrast with the development of costumer demand, which back then accounted for only 3.6% of the total green electricity produced (2004:1693). Now that the context of when the programs came into effect has been set out, this paper will turn to how the research has been conducted, after which the comparison will begin. 3. Methodological Approach 3.1. Goals This paper aims to do two things: Primarily: Demonstrate that the green electricity programs of the two countries were in fact biased to supply and demand side promotion respectively (X), and argue why this would in fact have influenced the (difference between the) development of these sectors (Y) in the respective economies. Secondly: Provide some explanation regarding how the difference in effectiveness (X  Y) might have been catalysed by a lack of internal effectiveness. Figure 1. Schematic overview main arguments Thus, while the primary goal of this research is to find out whether a bias exists for each program and whether that may explain the difference in current development between the two countries, the secondary goal focuses more on whether there were any discrepancies within the implementation of the programs between its respective government levels involved. The research conducted to attain these two goals hence encompasses a Supply or demand side promotion of green electricity (X) Effectiveness? Market share of green electricity in total electricity consumption (Y) 11
  • 12. comparative study between the green electricity programs of the German and Dutch government, over a time-span of eight years (2004-2012). 3.2. Data and cases As said, the German and Dutch government are chosen because they’re both modern, liberal economies with an interest in green electricity promotion. As of 2004, they both started (or greatly amended) their first comprehensive subsidy-project to promote and stimulate green electricity on a national level. With the Netherlands this meant the introduction of the MEP, which later on would be followed by its successors the SDE (2008) and the SDE+ (2011). Also in 2004, the German Bundesrat accepted major changes to the goal and measures of its four-year old EEG (2000), a program that lives on today. Both countries have to obey to the rules set out for them by the EU on green electricity. According to this Union, green electricity is power derived from ‘wind, sun, geothermic heat, billow, hydropower, biomass, landfill gas, sewage treatment plants and biogases’5 (EU, 2003). This is the general definition of green electricity used in this paper and research, and it is similar to the definition used by the Database Eurostat (see Appendix 1). This latter database provides the actual percentages of green electricity produced over the investigated period relative to the total electricity produced in a country, per year. The data and documents necessary to study the programs mainly comes from the governments itself, primarily the reviews of the EEG in Germany (BMU, 2004, 2007, 2011) and the Energy Reports in the Netherlands (2002, 2005, 2008, 2011). In addition, earlier research conducted to the programs such as conducted by Wüstenhagen and Bilharz (2006) and Korteland (2007) will be examined. Finally, supplementary data and information is retrieved from other public documents (from other public agencies) and more informal sources (public media)6 . 3.3. Qualitative Comparison In this research a comparative study was chosen. In order to know which political approach (on demand or supply) has a greater effect on this percentage, a thorough investigation is necessary of the policies implemented in both Germany and the Netherlands. 5 Translated to English from Dutch: ‘wind, zon, geothermische warmte, golfslag, getij, waterkracht, biomassa, stortgas, gas van rioolzuiveringsinstallaties en biogassen’ (EU, 2003) 6 Some of the data sources were not written in English, but in Dutch or German. Both languages didn’t limit the understanding of the respective texts, as the author of this article has sufficient knowledge of either language. However, the reviews of the EEG of 2004 and 2007 (published in German) have been acquired in English and only this latter translation has been used. A thorough comparison between the German and English variants, though, has negated the concerns about completeness and exactness of the translation. 12
  • 13. Two ways were possible at the start of this investigation. By selecting specific words that indicate an emphasis on either a demand-sided approach or supply-sided approach the researcher would have been able to scan through a range of documents and conclude on the basis of this more quantitative data whether the policy documents had a bias towards the one or the other. Several objections can be made with respect to this methodology. To start of with, it would be difficult to clearly state whether a specific word or concept used refers explicitly to a single category. Even words as ‘supply’ and ‘demand’ might be analyzed in the opposite meaning as they originally were used in the text, let alone the fact that most words are ambiguous in the sense that even when put alone (out of context) they still would be hard to ascribe to a certain category (e.g. production, economy, policies etc.). Moreover, German is not a native language of the author and thus to find a perfect equivalent for the Dutch or English words selected in German would not be without problems and could thus influence its internal validity. Therefore a more qualitative approach has been chosen to conduct this research. ‘Qualitative research is a research strategy that usually emphasizes words rather than quantification in the collection and analysis of data’ (Bryman, 2008:366). As with most qualitative research, purposive sampling has been used to select the German and Dutch cases (2008:375). Their similar economies, history and institutional memberships make it even more notable that the development of their green electricity sector is so different. In addition, due to the Dutch nature of the researcher and the prominence with which the German system features in academic and political work, the choice for these two selections becomes even more self-evident. Furthermore, the second layer of sampling – often present with purposive sampling – entailed the selection of the programs selected within the selected countries (ibid.). However, the size of the programs chosen relative to the other green electricity projects made that for both countries this choice was fairly easy. Several other aspects of qualitative research have to be regarded as well, before this paper can elaborate further on the research design. External reliability is not a great concern with regard to this research. Due to the fact that this research is based on published documents and other open sources, a similar research would have to come to the same conclusions. However, these conclusions can only be comparable to the conclusion presented in this research when ‘[…] there is a good match between [this researcher’s] observations and the theoretical ideas’ developed here (Bryman, 2008:376). This internal validity will be ensured by continuously throughout the paper making sure to explicitly substantiate the choices made during the research – why do investigate some things and 13
  • 14. omit others – and the conclusions drawn from them. Due to the qualitative nature of this research and consequently the context dependency of the findings, finally, generalizing these findings to other economic sectors or different situations will have to be done cautiously, while constantly being aware of the significant caveats. The study conducted is primarily made up of qualitative content analysis, a searching-out of underlying themes in the documents earlier stated (Bryman, 2008:529). The research design is a comparative case study, carried out of a longer period of time. ‘The key to the comparative design is its ability to allow the distinguishing characteristics of two or more cases to act as a springboard for theoretical reflections about contrasting findings’ (2008:61). Through a close reading of both review papers (of Germany and the Netherlands) not only could be concluded whether the programs itself are demand- or supply-sided, yet also what the intention of the policymakers was with the programs and in what way they changed the programs to better meet these expectations. Next to the primary goal, which is obtained by comparing the states, the secondary goal involved an institutional comparison, between macro-economic (or political) vision and official implementation (Hague & Harrop, 2007:85-89)7 . These comparisons give the advantage of selecting two different cases with a very similar background, and thus make it possible to discern (one of) the cause(s) for an observed difference, while the qualitative aspect of the research creates the possibility to take into account context and external influences. 3.4. Operationalization The terms introduced earlier concerning supply and demand promotion and the macro- economic neoclassic and interventionist views are all concepts which can only be described by way of marking indicators. As opposed to quantitative research, however, the investigator should always be aware that within a qualitative research strategy indicators are ‘sensitizing concepts’, because they merely provide a ‘general sense of reference and guidance in approaching empirical instances’ (Blumer in Bryman, 2008:373). As already mentioned in the earlier discussion, two different analytical levels exist to which the theories of demand and supply side can be applied: macro-economic vision of a country; and the executed measures of green electricity programs. With regard to the former, no explicit indicators can be given. It is not within the scope of this research to 7 Since this is only of minor relevance in comparison to the main target of this paper, and due to the lack of space within this paper, no further detail will be given about institutional comparison. See Hague and Harrop, 2007 for more information. 14
  • 15. investigate (based on own observations) whether a government has a more interventionist or non-interventionist approach. Thus, unfortunately, this will be merely based on external data and some minor observations8 . Concerning the measures implemented the research focuses on the indicators as provided during the discussion about the different theories earlier. Thus, a demand side approach can be identified by looking if governments try to develop demand in any way possible. This can range from measures that protect the independency of consumers and customers of green electricity relative to the supply side, to a measure through which the government itself acts as a buyer of the green electricity supplied. Following that similar line, supply side measures would then be anything from financial support to the establishment of public green electricity facilities. Again, the theories are merely Idealtypen and it is probable that the programs feature aspects of either theory. Therefore, to fancy more stringent indicators would only harm the accuracy of the conclusions9 . 3.5. Planning In order to further enhance the clarity of the paper and be able to stay near the subject and goal of the paper, this paper is comprised of several interconnected parts, schematically represented in Figure 2. Figure 2. Schematic overview paper 8 Without a doubt, this is a loss for this research. Yet, the amount of material written on this subjects, the extremely wide international scope of the topic (and its debate), and the lack of a clear general consensus make it a research subject on its own, and, more importantly, makes it impossible to present here a short, clear and objective list of indicators – in further detail than what has already been said earlier about these themes. 9 Though this would, probably, enhance the external validity of the research. Macro-economic vision Interventionist or non-interventionist? Intentions of the programs Demand or Supply? Implemented measures Demand or Supply? Macro-economic vision and Intentions in line? Intentions and Implemented measures in line? 1 1 5 3 4 2 Colours: Primary Focus Secondary Focus 15
  • 16. First the macro-economic vision (1) of each country will be examined, distinguishing between more interventionist approaches and non-interventionist economic politics. Following, a specific insight will be given into what the intentions of the programs entailed (2). Where the programs purposed to support the demand side or, on the contrary, to directly enhance the supply side? The third part of this paper will then compare the results of the first two parts (macro-economic vision and the program’s intentions) and conclude whether these two were in line with each other (3). Did the more interventionist state indeed intend to set up a program that would support the demand side? After the programs of the respective governments with regard to green electricity have been discussed it will be possible to look as to whether the actual execution of the programs favoured the demand or supply side (4). Obviously, then, it would be interesting to see if whoever was intended to be favoured at the start of the program, did in fact benefit directly from the program at its implementation (5). 4. Analyses 4.1. Macro-economic vision As stated, the macro-economic vision of a state is a longer-term perspective on how the government should behave with regard to the national economy. These visions obviously change form every time new elections are being held, but usually a general consensus exists as to whether a more interventionist approach is warranted or if the state should step back and let the mechanism of the free market take over. In accordance, different states can be ascribed to each category. Evident examples are the neoliberals in the United States (US) and the social market economists in states as China and Venezuela. Within Europe the differences are relatively more subtle, although even here a difference exists between for instance Great-Britain and continental Europe. These historic patterns are changing though. Indeed, the Netherlands and Germany too are slowly moving towards a more neoliberal macro-economic approach, even though they’ll remain interventionist for quite some time to come. Both feature an extensive welfare state, in which the government basically guarantees a medical, financial and social minimum way of life. The state doesn’t only present itself as a patron of civil and propriety rights, yet also intervenes regularly when (sectors of) the economy are involved with government labelled merit or demerit goods (for example green electricity and cigarettes), when so-called social values are 16
  • 17. threatened (e.g. by pollution) or when employment rates are under pressure due to cyclical fluctuations of the economy. Both governments in fact do still emphasize their commitment to the social market economies’ history (see for example German Coalition Agreement, 2009), yet, as stated, this trend seems to be coming to an end. After a period of rising prosperity and government expenses, the respective national leaders now too stress the responsibility of the society as a whole to organize independently those things of which the government used to be responsible. In the last coalition agreement of the Germans, it was said that ‘[t]he freedom to exercise responsibility will serve as the compass for this centrist coalition’ (German Coalition Agreement, 2009). In concordance, the Dutch coalition agreement too expressed concern for a government that would be ‘in the way’ of individual initiatives (Dutch Coalition Agreement, 2012). The current economic crises have only further limited the states’ possibilities, due to cutbacks on the national spending and new momentum for (neo-)liberals. Years of continued increases in government expenses have come to a halt and prominent personalities publicly question the interventionist approach and its, in their eyes, debt- ridden legacy. German’s neoliberal turnaround already started in 2005, with the election of the CDU/CSU, which meant the leftist era of the SPD under the rule of Gerhard Schröder had come to an end. Enormous cutbacks on the national expenses, primarily concerning the social welfare system were a sign of radical change (NRC Handelsblad, 2005). And even though interventionist measures were still being employed, the government had no choice but to bring its finances in order before big new projects could be launched. More or less the same applies to the Netherlands. With the centre-right VVD emerging as the biggest political party at the elections of 2010, the tone for a more neoliberal approach was set. In addition, before 2010, already several cutbacks had been announced and the economic crises gave such momentum to the neoliberals that for the first time in the history of Dutch politics the neoliberal VVD emerged victorious. In the Netherlands too the interventionist consensus which had dominated Dutch national politics around the millennium had slowly conceded to its neoliberal opponents. Consequently, the macro-economic vision of each country can be described as interventionist, though it should be kept in mind that the new prevailing political consensus 17
  • 18. is one of more responsibility for the individual citizen and the state as mediator between supply and demand. 4.2. Intentions When looked at the different intentions or goals of the measures, it would seem both programs are equally supply side oriented. The Dutch government repeatedly mentions the primary goal is to bring the supply side up to speed with the steadily rising demand for green electricity (e.g. Energy Report, 2005:35). Especially the MEP, with the costs being borne by the consumers, was clearly an intention to stimulate the supply side. The former tax benefits for consumers were replaced by direct investments in the production chain to enhance production and new research. As the state perceived it, the coming of the SDE and the SDE+, and the first-come, first-served principle would only increase the competitiveness of the sector with regard to electricity produced from fossil resources. The German government wielded a similar reasoning. The goals of the EEG in 2000 were still indefinite, as they intended to substantially increase the production of green electricity, ‘in order at least to double the share of renewable energy sources in total energy consumption by the year 2010’ (BMU, 2000)10 . In 2004, these targets had been made more specific, including promoting development of renewable energy technologies and increasing the share of renewable energy sources to at least 12.5% of electricity supply by 2010 and at least 20% by 2020 (Wüstenhagen & Bilharz, 2006:1686). By looking primarily at the production percentages of green electricity in comparison to the total amount of electricity produced, it evidently targeted for a further development of green electricity production. As stated in 2004, ‘[t]he objective of the Renewable Energy Sources Act is to increase the share of total power supply which is derived from renewables [by improving] the overall framework for feeding in, transmitting and distributing electricity from renewable sources’ (BMU, 2004). 4.3. Vision and Intentions in accordance? When looked at the macro-economic visions of the countries and the intentions that were presented specific to the green electricity topic, only slight discrepancies can be highlighted, mainly concerning the German case. The Dutch macro-economic vision seems to be in accordance with its intentions at the start of the MEP and its successors. As stated, the MEP was intended to thoroughly support the supply side through a substantive and elaborate program of subsidies. The 10 Which was 6.1% in 2000 (Database Eurostat). 18
  • 19. interventionist character of these subsidies can be said to be in line with the more leftist legacy of Dutch history, while the emphasis on the supply side as the main beneficiary seems to be in agreement with the neoliberal uprising of the 2000s. Only minor remarks can be made about the SDE, as it transferred the responsibility of the costs of the program back to the national treasury (instead of levying the electricity bill of consumers). This presented a more interventionist step as it too transferred responsibility of green electricity to the government instead of the consumers11 . This was already made undone, however, with the coming of the SDE+ in 2011 (Energy Report, 2011:25). Moreover, the first-come, first served principle too showed a preference for market responsibility as opposed to government intervention. As for the German situation, at first it would seem the intentions of the EEG were in line with the general consensus of interventionist policies. The program’s goals focussed primarily on supporting the supply side through direct investments and compensations. The interventionist character of the country was thus applied to the green electricity sector, partly due to the fact that the program was initially started in 2000 – still during a period of interventionist consensus. However, as opposed to the Dutch situation, the non- interventionist political idea that settled following 2005 was never reflected in the programs goals after that period. Neither during the 2007, nor after the 2011 reviews was a more market oriented plan proposed. Sure, due to the fact that the costs of the program lay continuously with the consumers and the amount of compensation was lowered annually after 2004 already a certain view of market responsibility was introduced, yet no further policies underlined these intentions. The program too is still very elaborate and therefore increasingly expensive (Site NOS). The current debate about these costs is a signal that something has to happen to bring the non-interventionist view of the national politics back in line with the interventionist approach on the German power market – probably by altering the latter. In short, the misalignment of the German case might have affected its effectiveness, as its move from interventionist to non-interventionist macro-economic vision wasn’t reflected in its targets set for the EEG. The Dutch case seems to be more congruent, as both the macro-economic vision and the intentions of the programs expressed an increasing importance of non-intervention, supply-sided policies. 11 The costs of the program require special attention though, since technically speaking the government is paid for by its citizens as well. However, the difference obviously is that when the consumers pay, they in proportion to what they consume, i.e. those who use more, pay more. The transfer of the costs thus only meant an advantage for the large consumers, and it made no difference whatsoever for the supply side. 19
  • 20. 4.4. Programs By providing more detail of the Dutch and German programs and the measures they incorporated, it is possible to compare the intentions of the programs with the measures that were ultimately implemented as a result thereof. The Dutch policy, from 2004 onwards, consisted of three overlapping programs. As said above, the MEP replaced the tax-benefits the prior REB had granted to consumers until then. Demand had steadily increased, without an equivalent growth in supply. The MEP was to bring the production up to level, by compensating energy producers for the unprofitable investments that green energy production demanded (Dutch Audit Office, 2007:9). As stated, the goal of the first program was clear: supply side stimulation. Several primary measures were introduced with the coming of the MEP. The producers would get a direct compensation for their investments. The amount necessary to be competitive with conventional energy prices (i.e. the difference between market price and cost price) was guaranteed by the state. Moreover, the compensation was set for the following ten years after production had been initiated, based on expected market price fluctuations and changing (usually declining) production costs. The costs of the program were paid for by the consumers of electricity, through an extra levy on the electricity bill (Korteland et al., 2007:308). The MEP, however, soon came to an end as costs for the program were skyrocketing. At first, the costs could be paid for by extra levies on the electricity bills of consumers. Virtually, this meant the program was open-ended – anyone could apply for the program and be compensated (Dutch Audit Office, 2007:14). To put a halt to this, the government eventually did pay the subsidies from the states’ funds, in order to maximize the number of applicants that would be granted compensation. Still, over 2005 and 2006 the costs were too high to maintain the program, which thus, due to its own success, was terminated by the Ministry of Economics at the end of 2006 (ibid.)12 . As of April 2008, the SDE (Stimuleringsregeling Duurzame Energieproductie) had come into existence (Energy Report, 2008:72). This program had the same objectives as the MEP, though several new measures were introduced. As at the end of the MEP program, the costs of the SDE were included in the national budget and were thus perceived as regular subsidies. This was primarily done in order to put a maximum to the amount of compensations being able to apply, with a new first-come, first-served policy. Furthermore, the new program only supported new facilities, through which the government hoped to 12 The payments that had been promised up to that point (the 10-year guarantee) to the several production facilities did, of course, continue. 20
  • 21. spark new incentives for green electricity production. In addition, the compensation prices were set afterwards, meaning the investor could only hope his compensation would be enough to cover his expenses. For the government, this meant more flexibility and more appropriate prices in accordance with current market and conventional electricity prices, instead of the ten-year agreements with set prices (Dutch Audit Office, 2010:11). Finally, renewable gas and electricity production through heat were also included in the program. To further lower the costs of the program, the SDE+ was introduced in 2011. As apparent from its title, it too merely contained minor changes in comparison to its predecessor. A new competitive element was incorporated, which meant the available budgets were no longer set per technology (wind, solar etc), yet one grand budget included all technologies, which then had to compete amongst each other for subsidy (Energy Report, 2011:25). This way, the state assumed, the cheapest technology would develop the most. Furthermore, in addition to the first-come, first served principle, the Ministry of Economics introduced a phased opening of the available budget. This meant that those applying in the beginning would be certain of available budget, yet did get a lower compensation rate. With the beginning of each new phase, the budget would decrease and thus the uncertainty about getting the application approved would decrease along with it, even tough approved applications would get an increasingly higher compensation (Ministry of Economic Affairs, 2010). Finally, the costs of the program would in the future again be transferred to the consumers, by re-introducing the feed-in tariff – a levy on the electricity bill – in annual phases, starting in 2013 (Energy Report, 2011:25). With regard to the German policy, the EEG is the only program that was active in the period under investigation. The EEG came into existence in 2000 and, despite major adjustments in 2004, still is the primary program for the promotion of green electricity. The EEG consists of a few main measures to ensure these targets can be met. First it makes sure that every producer of green electricity can automatically be connected to the electricity net, so that its electricity can be fed in to the German electricity market (BMU, 2004). This purchase obligation (of the local grid operator) not only made that any supplier, no matter how small, could be connected to the public grid, it even provided priority for green electricity over electricity from conventional resources (BMU, 2004, Wüstenhagen & Bilharz, 2006:1685). Second, similar to the Dutch system, every German producer receives a guaranteed minimum price per kWh generated. Contrary, though, to the Dutch system are the agreements the producer makes with the grid operator, that often last for at least twenty 21
  • 22. years13 (BMU, 2004). A third attribution was made with the coming of a ‘[…] nationwide cost settlement system to balance out regional disparities’ (Wüstenhagen & Bilharz, 2006:1685). This meant that the costs arising from the purchase of green electricity are divided equally over German grid operators, and thus a grid operator managing a facility in an area with relatively a lot of green electricity facilities, doesn’t necessarily pay more than his colleague in an area with few green electricity suppliers14 . Furthermore, the respective amount that a green electricity producer receives as compensation decreases every year, because the German government expects higher prices for conventional electricity (due to higher oil and gas prices) and decreasing costs for green electricity (due to improving technology) to reduce the compensation needed (BMU, 2004). Finally, the costs of the program are borne by the user, as an extra levy on its electricity bill. 4.5. Measures implemented The question remains as to whether the programs, when reviewing the measures implemented by each of them, tend to favour support for the supply or the demand side. The Dutch programs seem to promote a more supply side orientation. Indeed, as mentioned above, their goals all more or less explicitly aimed for the growth of production through direct subsidies. When a closer look is given to the implementation of the programs, it appears the subsidies, which compensate for the difference between the cost of production of green electricity and the price of conventional electricity on the market, actually do only benefit the producers. No further benefit is given to the demand side15 . Moreover, by letting the SDE only apply to new producing facilities, the effect of the program could only be that more suppliers entered the market. These direct investments, alongside research subsidies and more spatial planning – for example where to put windmills – can all be seen as supply side measures. The German case is less straightforward. In addition to the minimum prices that were guaranteed – i.e. the same measures also incorporated in the Dutch policy instruments – the EEG also introduced a purchase obligation. Ultimately, this meant that no green electricity supplier had to worry about the demand for its product. As long as it produced 13 Until 2004, all green technologies received agreements up to twenty years. With the amendments made in 2004, agreements made with facilities using large hydropower, biomass or several other green gasses, were limited to a lifespan of fifteen years (Wüstenhagen & Bilharz, 2006:1685). 14 This is important, because once electricity has been fed into the grid, it can be distributed all over Germany, while, if this settlement system wasn’t present, the costs of this feeding-in would primarily lie with the local grid operator who purchased the green electricity in the first place. 15 It could, however, be argued that the liberalisation of the energy market that took place in 2004, which replaced a system in which costumers could only switch caterer when they switched to green electricity, in fact disadvantaged the suppliers. Indeed, they saw this advantage erode with the opening of the market, when costumers could also switch to providers of conventional electricity. More on this later on in this paper. 22
  • 23. efficiently enough to let the compensation – which was set for twenty years – cover its expenses, it would always remain profitable. The EEG, by way of minimum prices and a purchase obligation, virtually simulated demand. Basically this means, by way of simulating demand and thus providing a limitless market for green electricity, the German government has chosen to strengthen production through demand. In other words, the EEG is a demand side biased program and thus can be seen as a Keynesian tactic. The focus is on elevating demand and suspecting supply will pick up concordantly. 4.6. Intentions and Measures in accordance? As with the macro-economic vision and the intentions, it might be helpful to look closely at the relationship between the intentions of the programs and the execution thereof, in order to gain information as to why the effects of the different programs have been so different. The internal alignment of the Dutch case, as with the macro-economic vision and the intentions, seems to be in with respect to the intentions and measures of the programs. The intentions were to directly support the supply side. By compensating the initial costs of green electricity produced the program in effect made green electricity competitive with power from more conventional resources. The supply side of green electricity was thus aided by direct subsidies and investments that supported the start of new facilities and provided the funds for further technical innovations. This alignment sees to be off with regard to the German situation. Even though the intentions of the program are unambiguous in their claim to be supply-sided, this is incongruent with the implemented measures of the program. As explained, these only effect the production of green electricity through an increase in demand for such power. The purchase obligation is thus a demand-sided approach that assumes supply will follow accordingly when demand changes. As with the earlier institutional comparison of macro-economic vision and intentions, it also seems that the intentions and the implemented measures of the German electricity sector are off when looked at its main proponent, the EEG. This consequently means the implemented measures are congruent with the macro-economic visions of the German government. With respect to the Dutch situation, despite minor discrepancies, a general consensus between all involved seems to be present, whereby the macro-economic vision of the government and its change is directly translated to a proportional change in implemented measures. 23
  • 24. 5. Internal effectiveness 5.1. Secondary Target When an overall comparison is made between the German green electricity program EEG and the Dutch programs, their internal effectiveness, and the effect this effectiveness has had on the green electricity production of their respective economies, i.e. the secondary target of this paper, several noticeable differences become apparent. While the German growth rate has been fairly constant throughout the years investigated, the intertwined Dutch programs did leave their mark on the Dutch electricity development. Although development was lacking prior to 2004, the coming of the MEP and thus the first supply-sided measure did sharply increase production and consumption of green electricity (see Appendix 1 for a graphical overview). Immediately after the MEP was terminated in 2006 this growth declined, until consumption actually decreased. This fall, even though the SDE did try a catch-up from 2008 onwards could be argued as the moment when the Netherlands lost too much ground to catch-up with their Eastern neighbouring economy16 . This paper can be more conclusive about whether the internal effectiveness (i.e. the alignment of the vision, intentions and measures) influenced the final effect the programs had. Strikingly enough, even though it would be expected otherwise, it is the German case that reflects ambiguity and incongruence between the different government levels. Not only do the national political visions seem far from aligned to the intentions of the green electricity sector, these visions subsequently are not paralleled with the measures ultimately incorporated. When the German case is laid side by side to the final green electricity consumption, it can be concluded that the (in)congruency in views and implementation is not a determining factor in explaining the difference in green electricity production between Germany and the Netherlands. 16 This becomes even more apparent when one looks at the growth rates from 2000 to 2005. During this period, both countries’ green electricity increased its share of total electricity consumption equally with approximately four percentage points. 24
  • 25. 6. Final Remarks 6.1. Conclusion – Primary Target This paper has shown that there is indeed a difference in green electricity programs between Germany and the Netherlands following from a demand and supply distinction. It has demonstrated that, even though the initial intentions of the German government were different, the macro-economic vision as well as the implemented measures were demand- sided. The German program EEG was in line with Keynes’ theory of ‘demand creates supply’, as it simulated demand by implementing a purchase obligation for the grid operators. The Dutch case presents a model more in line with Say’s ‘supply creates demand’ suggestion. Not only is the macro-economic vision of the national politics in concordance with this theory, the intentions and ultimately implemented measures reflected this same line of thought. The MEP, SDE and SDE+ were all initiated to strengthen and compensate the producers of green electricity through price-levelling and market liberalisation, with no further demand side policies involved. The question remains than, if this demand side orientation has in fact supported the green electricity production in Germany, just as the supply side orientation of the Dutch programs might have tackled its progress in an early stage. Without a doubt, this focus is a factor of influence. The height of the government expenses on the programs, the size of these programs and the clear difference in policies between Germany and the Netherlands all add to the conclusion that the supply side orientation in the Netherlands and the demand side orientation in Germany contributed to the difference in results currently observed between the two. A final observation can be suggested. The demand side approach of the Germans was in addition to the same supply side measures the Dutch too implemented. With the coming of the SDE+, the difference between the German and Dutch supply-sided measures comes down to only slight differences. The compensation granted to the suppliers is more or less identical to the Dutch system – even though for the Germans this compensation could be granted to even the smallest supplier and for a longer period of time. The Dutch, already having a booming demand for green electricity, never implemented a purchase obligation and thus refrained from using demand side promotion as a policy tool. In this light, it could be argued the Germans have introduced a more complete and encompassing program, including demand-side policies – which even formed the back bone of the program. 25
  • 26. 6.2. Discussion Several remarks can be made here already that temper the significance of this research. The main one being, of course, that this study was unable to prove directly how important this supply/demand side distinction was to explaining the effect of the programs, relative to other explanations. As constantly stated throughout this paper, the bias towards a particular approach is merely one of the possible determinants for the difference in green electricity development currently perceived. Arguably, the public awareness of the climate problem itself is a contributing character, as is the current economic status of the country or the situation in other energy segments – especially the dismissal of nuclear plans in Germany is a point of consideration here. Furthermore, studies conducted to investigate the actual implementation effects might find that the effects of the program were completely opposite to what was expected from the measures investigated in this paper. All these possibilities – and others – were however not within the reach of this paper, due to the limited time and space available for this research. This does not mean these arguments do not deserve further enquiry, yet rather that this paper can be seen as an initial starting point for further research in a field so important as green electricity development. Additional research should also provide more clarity on the significance of other policies, besides the main programs investigated here. When these smaller programs would have been incorporated in this research a modest alteration of the conclusion might have been expected, because these instruments might be aimed at countervailing the bias in policy approach the main programs caused. It is unlikely, though, that these problems would have negated the main findings of this research, due to the stated importance of the main programs relative to these minor ones. These remarks will hopefully trigger others to investigate policy decisions in relation to green developments, due to its increasing public relevance and ongoing debate. 26
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  • 33. Appendix Appendix 1. Source: Eurostat Database http://epp.eurostat.ec.europa.eu/tgm/graph.do? tab=graph&plugin=1&pcode=tsdcc330&language=en&toolbox=sort Description: This indicator is the ratio between the electricity produced from renewable energy sources and the gross national electricity consumption for a given calendar year. It measures the contribution of electricity produced from renewable energy sources to the national electricity consumption. Electricity produced from renewable energy sources comprises the electricity generation from hydro plants (excluding pumping), wind, solar, geothermal 33
  • 34. and electricity from biomass/wastes. Gross national electricity consumption comprises the total gross national electricity generation from all fuels (including autoproduction), plus electricity imports, minus exports. 34