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by Jerome a Paris Tue May 31st, 2011 at 05:38:10 AM EST

Green exports and the global product space: Prospects for EU industrial policy by Mark Huberty, Georg Zachmann (Bruegel)

We test if and where industrial policy to promote ‘green’ industry development can improve competitiveness in export markets. Proponents of ‘green growth’ have argued that domestic promotion of ‘green’ energy will generate improved comparative advantage in export markets for high-technology goods such as wind turbines or solar cells. If this holds depends on if domestic market expansion can, on its own, support firm competitiveness abroad.

We find evidence that industrial policy may work for wind turbines, but we find no evidence that it works for solar cells. Furthermore, domestic renewable energy promotion is more likely to translate into improved international competitiveness if a country already possesses skills, technologies, and industrial sectors closely related to the sector in question. By locating the wind turbine and solar cell sectors in the global product space of traded goods, we are able to show that, net of historical competitiveness and domestic market size, green industrial policy functions best when capitalising on pre-existing industrial capacities, rather than trying to create them.

Power troubles grow darker

Financially crippled coal plants are shutting down their generators, even though the country is facing one of its most severe power shortages ever (...) The deficiency could reach 40 million kilowatts when power consumption reaches its annual peak during the summer (...)

According to the Hong Kong-based Wenweipo newspaper, compared with 2007, the average electricity rate has risen by 15 percent, compared to a 75 percent surge of coal price in the same period. China's five biggest power generation groups had accumulated up to 60 billion yuan ($9.23 billion) in losses in their coal power business since 2008, according to the State Electricity Regulatory Commission (SERC), and the deficit continued to expand in the first four months of this year.

"Many coal plants have shut down their generators because the more they produce, the bigger the losses they will suffer," Li Chaolin, a coal and energy industry analyst at Anbound Group, told the Global Times. "The gap cannot be filled under the current system - on the one hand coal prices are driven up by the market while on the other, the price of electricity is being squeezed by government intervention," he added.

It seems that our current ideology of preferring markets to intervention is only trumped by the imperative to get cheap energy at all (non-monetary) costs, and we end up getting the worst of all worlds, driven by short term political (or even populist) considerations...

See also the current diaries on similar topics:

Merkel's nuclear exit by DoDo

Under the impression of three post-Fukushima regional elections that saw losses for their parties and big gains for the Greens, and undaunted by protests from all of Merkel's fellow G8 leaders, German chancellor Angela Merkel's federal government is moving ahead with its phaseout of the phaseout of the phaseout of nuclear power: over the weekend, after tough negotiations, the leaders of the CDU, CSU and FDP parties reached a framework agreement about shutting down all 17 reactors in Germany by 2022.

The devil is in the details, however. The terms of the nuclear phaseout themselves seem to include a number of back doors allowing for yet another 180-degree-turn in the future. As for replacement capacity, it is unclear what exactly the government wants beyond new power lines, though early signs are that instead of supporting accelerated expansion of renewables, they want to allow existing energy giants to expand coal and gas generation. At the same time, whatever the government intends to do, lately the prospects of coal power aren't all that rosy.

Wimpy Europeans and shale gas by Jerome a Paris

The European Energy Review has an article about Europe's reluctance to embrace shale gas (free subscription probably required) which is more interesting for the number of clichés about Europeans it carries.


Tableau de bord éolien-photovoltaïque au premier trimestre 2011


  • puissance raccordée : 5874 MW au 31/03/2011 (+1% par rapport au 31/12/2010) pour 906 installations
  • 80 MW nouveaux raccordés au cours du 1er trimestre 2011 (-45% par rapport au 1er trimestre 2010)
  • 3,2 TWh produits au cours du 1er trimestre 2011 en métropole (+15% par rapport au 1er trimestre 2010)

  • puissance raccordée : 1337 MW au 31/03/2011 (+25% par rapport au 31/12/2010) pour 182 486 installations
  • 267 MW nouveaux raccordés au cours du 1er trimestre 2011 (+162% par rapport au 1er trimestre 2010)

Wind power
by Jerome a Paris (etg@eurotrib.com) on Tue May 31st, 2011 at 06:19:25 AM EST
Wind is barely growing at all, off a very low base!

This, because developers

a) have a hell of a time getting permits, due to more stringent regulations, and lack of incentive for local authorities to facilitate them
b) have trouble financing wind parks they already have permits for.

It's almost as if the government were deliberately sabotaging terrestrial wind. Almost no irony intended.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Tue May 31st, 2011 at 10:59:08 AM EST
[ Parent ]
But at least solar is still growing. What is the current incentive system there?

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Tue May 31st, 2011 at 12:35:04 PM EST
[ Parent ]
Actually, wind has been doing decently well in France over the past few years, with above a GW installed each year, and the same likely this year. The drop in the first quarter is not significant as such.

Wind power
by Jerome a Paris (etg@eurotrib.com) on Tue May 31st, 2011 at 12:46:30 PM EST
[ Parent ]
I add: in every country I saw intra-year data for, wind installations peak in the fourth quarter.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Tue May 31st, 2011 at 01:08:51 PM EST
[ Parent ]
Q4 loaded installations are something the industry has been trying to avoid, or get a better handle on for two decades. Particularly egregious in the USA-based configuration of reality, not nearly so bad in Yurp.


"Life shrinks or expands in proportion to one's courage." - Anaïs Nin

by Crazy Horse on Tue May 31st, 2011 at 01:32:33 PM EST
[ Parent ]
The pdf linked from Jérôme's link includes a graph showing the last three years and this year with the quartals in different colours. Apparently, the trend is not so clear there: in 2007 and 2009, Q3 was equally strong; in 2008, Q3 was weak and all the others equally strong (while total annual installations showed a steady moderate increase).

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Tue May 31st, 2011 at 02:00:52 PM EST
[ Parent ]
Proponents of `green growth' have argued that domestic promotion of `green' energy will generate improved comparative absolute advantage in export markets for high-technology goods such as wind turbines or solar cells.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue May 31st, 2011 at 09:11:14 AM EST
An amusing juxtaposition. China could use its US dollar denominated reserves, or just stop growing those reserves, to purchase US coal and sell it at a loss while gradually increasing the cost of electricity. At least they HAVE that option and it is a lot less painful than the option being foisted on European societies by Mr. Market, which is to drive wage levels down so as to "compete" with those in China.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue May 31st, 2011 at 10:12:38 AM EST
Fortunately, the US government has ignored this advice in e.g. battery manufacturing, despite the best efforts of our Comprador Confederate political party.


by rootless2 on Tue May 31st, 2011 at 10:25:05 AM EST
I actually agree, somewhat, with the idea that "green" industrial policy works best where it builds upon existing industrial capacities.  It's that idea of backward and forward linkages.

I suppose that industrial policy can use the location of an anchor firm, e.g. a turbine manufacturer, in order to draw suppliers to an area.  But without a potential supplier base that seems like quite a job.

For example, a history of auto transmission plants, and the matching supplier base, links well to wind turbine gearbox production.  The former is a step down gear, the latter a step up gear. The degree of complexity and tolerances are much higher in gearboxes, but still the existing industrial capacity matters. I don't think you really disagree with this, so I'm not sure if you are maybe overstating the neo-liberal tendency in the first piece.

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Tue May 31st, 2011 at 11:43:35 AM EST
I've skimmed the report, but I don't have time for a point by point takedown. So this is going to be couched in generalities:

About the paper:

  1. The actual results in the paper are far less conclusive and described with less certainty by the authors themselves than in the summary.

  2. Yes, history cannot be denied. If you already have a history of precision metal engineering and relatively less in large scale silicon manufacture then your wind industry is going to do better out of state support than your solar, per euro of subsidy...

  3. Solar is still developmentally behind wind - the race for now is still to find the best solution, more than engineer the best implementation. The study treats the technologies as being at the same stage and that rather automatically produces the results seen.

I don't know if this is Jerome's point, but my point from all this is that market based analysis gives you nice short term optimisations, but tells you nothing about achieving your desired goals.

If we want a solar industry, we need to invest and develop the skills. The market may indicate that it is more efficient to spend that money on oil companies, for short term gain, but in the long term that is a dead end.

Basically it comes down to whether or not you believe in generative industrial policy. Outside of the US, the countries that have the background supply chain to do solar have it because they put up industrial policies to grow their silicon/electronics industries, many of them basically from scratch. I don't think that's an accident...

by Metatone (metatone [a|t] gmail (dot) com) on Tue May 31st, 2011 at 12:57:39 PM EST
[ Parent ]
I think that you're right that photovoltaic solar is sui generis, one of a kind, in that it lacks the type of backward linkages that wind does.  So I suppose that it makes sense that they find that the multiplier effect of state aid is lower in in pv solar than wind. The baseline is lower so the "boost" is going to be less impressive in absolute terms.

That said, I dislike that they talk about solar cells but not concentrating solar power, where there are lots of backward linkages to metal and glassworking. What I do see is that these guys take a network view of the economy which at at odds with the atomized view that neo-liberalism gives.  

There's some sort of madness in the fact that neo-liberals tend to view that economic actors are homogenous and interchangeable, i.e. if all the automakers and their suppliers fail some other firm will go into that field.  It's just so analysis.

I've been thinking of how this relates to Durkheim and the division of labor recently.  The idea there is that it's the differences that keep the economy rolling.  The butcher cuts meat, the baker makes bread, and the candlestick maker gets us our candlesticks. They specialize because that is what they are best at. It's this specialization and the development of specialized equipment and skills that leads to efficiency.  

How does that square with the atomized view of the economy that neoliberals push? If the butcher goes out of business and the candlestick maker decides to try to step into that business they just aren't going to be as effective. I can't put my finger on it, or communicate it clearly, but there's a real paradox here.  

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Tue May 31st, 2011 at 01:43:40 PM EST
[ Parent ]
No time for a proper response, but I agree totally with your general thrust.
by Metatone (metatone [a|t] gmail (dot) com) on Tue May 31st, 2011 at 02:25:03 PM EST
[ Parent ]
That's what the assumption of negligible bankruptcy costs does to your model. If you construct a model with non-negligible bankruptcy costs and margin calls, then you get some interesting cascade effects. But since that's not an equilibrium model, it by definition cannot be Serious.

Negligible bankruptcy costs was not necessarily a completely insane assumption in Walras' time. But in today's capital-intensive production it most certainly is.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 31st, 2011 at 03:08:05 PM EST
[ Parent ]
Their basic questions:

  1. Does state aid to green energy correlate with the size or scope of domestic markets for 'green' energy goods?

  2. Does the size of domestic markets for green or renewable energy--themselves opportunities for 'learning by doing'-- correlate with international competitiveness in markets for renewable energy goods?

  3. Does competitiveness in green energy goods grow out of earlier patterns of competitiveness in related sectors?

Their advance reply:

Subject to the limitations of the state aid data, we find limited support for the relationship between state aid and market size. But market size and competitiveness are highly correlated, particularly for wind turbines. In contrast, global competitiveness in solar cells appears to depend more heavily on pre-existing structures of economic competitiveness.

On the face of it, this is a completely useless study.

  1. It makes little sense to correlate the level of state aid (whatever form it takes) and the size of the domestic market without considering the actual method of state support (unless you are a neoliberal: then the pros and cons of different methods don't count, all state aid is evil).

  2. It also makes limited sense to correlate the size of domestic markets and export competitiveness, without considering the stability of said market, and also the differences in state aid and incentives aimed directly at the industry rather than the consumer.

  3. The correlation between pre-existing competitiveness and new green product competitiveness may well be a case of correlation not implying causation. We live in the world of outsourcing: there is nothing a priori to prevent an industry competitive in one country to grow its green product spinoffs in another country. And why stop at country level? For example, while the Western part of Germany had a homegrown semiconductor industry, much of the new solar industry is greenfield investment in East Germany.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Tue May 31st, 2011 at 01:05:30 PM EST

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