The divergent paths of renewable energy in Germany and the United States

Laird, Frank N., Stephes, Christoph. 2009. The diverging paths of German and United States policies for renewable energy: Sources of difference. Energy Policy 37, 2619-2629. doi:10.1016/j.enpol.2009.02.027.

Keller, Sarina 2010. Sources of difference: In answer to the article about diverging paths of German and US policies for renewable energies. Energy Policy 38, 4741-4742. doi:10.1016/j.enpol.2009.10.035.

The aim and central argument

Although Germany and the United States gave similar responses to the oil price shocks in the 1970s, their energy policies have been diverging since the late 1980s. Laird and Stephes (2009) argue that conventional explanations for the difference between renewable energy development in the two countries are wrong or incomplete. They emphasize the importance of institutional and social factors which determine how unique historical moments that create favorable circumstances for energy transitions are used. Keller (2010) acknowledges the value of this argument, but claims that crucial points are missed.

Sources of difference between renewables development in Germany and the US

Laird and Stephes (2009) start by critically discussing conventional explanations of the difference between German and US renewable energy policies. Arguments based on resource endowments are dismissed because the US has comparative advantage in renewable energy production. Explanations based on a more positive public attitudes to renewables in Germany are dismissed because results from opinion polls are similar and because public opinion often follows, not drives, energy policy decisions. The important role of the Green Party in Germany is not denied, but more comprehensive differences between the political systems of the two countries are emphasized. Technological explanations are dismissed because both countries have large and sophisticated manufacturing systems and because both countries invested substantially in alternative energy technologies.

The paper gives an historical overview of renewable energy policies in Germany and the United States from the 1970s to the 2000s. Developments in the 1970s and early 1980s were similar. As a response to the oil price shocks, both countries provided R&D funding for renewables and created new institutions that improved opportunities for lobbying. Renewables suffered setbacks in the early 1980s in both Germany and the US. The turning point came in the late 1980s and early 1990s.

In Germany, Chernobyl undermined trust in nuclear energy, coal subsidies were ruled illegal by the EU, and climate concerns emerged. Together, these factors created a favorable environment for renewables. Despite opposition from most conservative parlamentarians then in governmental positions, members of the social democratic and green parties could team up with conservative backbenchers who supported small hydropower to pass groundbreaking legislation that introduced a feed-in tariff for renewables in 1990. Preoccupied with challenges of the reunification, utilities underestimated the importance of this law, and did not react quickly. An explosion of wind energy followed in the next 10 years. The sector became so strong that it even survived the backlash from the conventional energy industry (1996-1998) with the help of the Red-Green government elected in 1998. A new, better designed feed-in tariff in 2000 that provided long-term guarantees for investors, support for large-scale investments, and a cost sharing mechanism for utilities was crucial for the acceleration of the transition. Moving energy decision making to the Ministry of Environment helped to fend off later attacks by old industries. When conservatives regained power in 2005, positive feedbacks - lobby powers, non-governmental organizations and political forces - already worked for renewable energies.

In the US, the Exxon Valdez catastrophy in 1989 and the Persian Gulf War in 1990-1991 could have led to similar policies. The 1992 Energy Policy Act, however, created a much less favorable environment for renewables. Although tax credits were provided for wind energy and R&D spending on renewables was increased, both policies needed regular renewal. Constant battles over budgets led to large uncertainties, which hindered investments. As university and industry research did not get reliable funding, innovation programs were weak and no strong and coherent groups could emerge to support renewables. Unlike in Germany, political conservatives were united against renewables on ideological grounds. The effective opposition resulted in scant interest for renewable energy issues in the media, policy making or public discussions. The business-as-usual scenario continued for two more decades. The few important moments that opened opportunities for change have not been used effectively.

Response

As a response to this article, Keller (2010) notes that conventional explanations are more important than suggested by Laird and Stephes (2009). First, conventional energy resources are different in Germany and the US, and, therefore, the starting conditions for renewables are different as well: with large domestic sources there is no need to develop renewables for energy security. Second, Germany is dependent on manufacturing exports while the US is a more service-based economy. Third, the difference between actual production from renewables was not large before 2000.

Other explanations of the difference may include (1) that Germany supported bottom-up initiatives by providing direct compensation for small-scale producers while the US helped large institutional investors with tax credits; (2) state-level differences in the US that are completely neglected by Laird and Stephes (2009), and (3) the difference between German and American self-conceptions, one focused on a strong need for security, trust in solidarity and long-term solutions, and the other focused on individual achievement and market forces (this is reflected in policies: feed-in tariffs vs. tax credits).

Critical reflections and conclusion

It is clear that path-dependence and self-reinforcing changes are very important to explain differences between the two countries. The article by Laird and Stephes (2009) offers valuable insights about using unique historical opportunities effectively. It is not clear, however, whether success depends more on the power of coalitions supporting renewables or the concrete policies enacted in such critical moments. Was the difference between feed-in tariffs and tax credits crucial or groups favoring renewables could have increased their power with other policies as well in Germany? Why did fluctuations in German R&D budgets not have a similar effect as those in the US? Is low public interest in renewable energy issues in the US not a public opinion (or public commitment) issue that is not captured by opinion polls? One may wonder whether a longer period of pre-development is really needed for change or Keller (2010) is right to focus on actual production instead. What forms pre-development can take may also be a question. Maybe it is not just innovation happening in protected niches but a few fortunate institutional and policy changes that really matter when a window of opportunity opens for renewables. Further comparative research may help to better understand the drivers of energy transitions.