T H E P O L I T I C A L E C O N O M Y O F C L E A N E N E R G Y T R A N S I T I O N S UNU World Institute for Development Economics Research (UNU-WIDER) was established by the United Nations University as its fi rst research and training centre and started work in Helsinki, Finland, in 1985. The mandate of the institute is to undertake applied research and policy analysis on structural changes affecting devel- oping and transitional economies, to provide a forum for the advocacy of policies leading to robust, equitable, and environmentally sustainable growth, and to promote capacity strengthening and training in the fi eld of economic and social policy-making. Its work is carried out by staff researchers and visiting scholars in Helsinki and via networks of collaborating scholars and institutions around the world. United Nations University World Institute for Development Economics Research (UNU-WIDER) Katajanokanlaituri 6B, 00160 Helsinki, Finland www.wider.unu.edu The Political Economy of Clean Energy Transitions Edited by D O U G L A S A R E N T , C H A N N I N G A R N D T , M A C K A Y M I L L E R , F I N N T A R P , A N D O W E N ZI N A M A N A study prepared by the United Nations University World Institute for Development Economics Research (UNU-WIDER) 1 3 Great Clarendon Street, Oxford, OX2 6DP, United Kingdom Oxford University Press is a department of the University of Oxford. It furthers the University ’ s objective of excellence in research, scholarship, and education by publishing worldwide. 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Non-Commercial - the work, or any adaptation of the work, may not be used, distributed or reproduced in any format, by any means, for commercial purposes. Share-Alike - the work, or any adaptation of the work is distributed under the same licence terms as the original, with a URL link provided to the licence. Some rights reserved. Foreword Sustainable energy transitions involve the shift of resources between compet- ing industrial sectors and political constituencies. Stakeholders in this process have varying degrees of political and economic power, and understanding how political economic factors in fl uence clean energy transitions is crucial to effective policy formulation and facilitating transitions to sustainable energy systems. In partnership with the Joint Institute for Strategic Energy Analysis (JISEA), UNU-WIDER gathered together a substantial group of experts from around the world — from both developed and developing countries — to launch a multidisciplinary research project seeking to contribute to our enhanced understanding of these factors. The project sought to facilitate an energy transition that will generate very large environmental and economic bene fi ts, particularly over the long run. The bene fi ciaries of clean energy transitions are highly diffuse and include future generations not yet born. This book is the distilled essence of the cross-cutting academic project. I express my sincere and professional appreciation to the large group of expert authors for their dedication to the project, and to my fellow editors in helping bring together the book for readers to enjoy and absorb along with the fi ndings and policy implications. Finn Tarp Helsinki, January 2017 Acknowledgements The research project — The Political Economy of Clean Energy Transitions — was carried out in partnership between the United Nations University World Institute for Development Economics Research (UNU-WIDER) and the Joint Institute for Strategic Energy Analysis (JISEA), 1 which is housed within the National Renewable Energy Laboratory (NREL). We, the editors, are grateful to the staffs of the two institutions who have helped to make this collaboration smooth and productive. We also thank the international team of authors — each of whom are experts in their own fi elds — for their dedication to the project, and their patience when reworking and revising the various versions of the individual studies which now make up the polished chapters of the book. This multi-authored book would not have been possible without their expert fi eld knowledge and extremely valuable inputs. Adam Swallow, Economics and Finance Commissioning Editor at Oxford University Press, provided invaluable guidance, and we are grateful for the anonymous referee reports that helped sharpen our focus. Particular thanks also go to Lorraine Telfer-Taivainen, UNU-WIDER ’ s Senior Editorial and Publishing Assistant, for all her careful, critically needed, and sustained publication support, including the many contacts with OUP. UNU-WIDER gratefully acknowledges the support and fi nancial contribu- tions to its research programme by the governments of Denmark, Finland, Sweden, and the United Kingdom. Douglas Arent, Channing Arndt, Mackay Miller, Finn Tarp, and Owen Zinaman 1 The Joint Institute for Strategic Energy Analysis is operated by the Alliance for Sustainable Energy, LLC, on behalf of the US Department of Energy ’ s National Renewable Energy Labora- tory, the University of Colorado-Boulder, the Colorado School of Mines, the Colorado State University, the Massachusetts Institute of Technology, and Stanford University. The views and opinions of authors expressed herein do not necessarily state or re fl ect those of the United States government or any agency thereof. Contents List of Figures xiii List of Tables xv List of Abbreviations xvii Notes on Contributors xxvii I. THE POLITICAL ECONOMY O F CLEAN E NE R G Y T R A N S I T I O N S 1. Introduction and Synthesis 3 Douglas Arent , Channing Arndt , Mackay Miller , Finn Tarp , and Owen Zinaman 2. The History and Politics of Energy Transitions: Comparing Contested Views and Finding Common Ground 16 Benjamin K. Sovacool I I . C L I M A T E PO L I C Y 3. Carbon Pricing under Political Constraints: Insights for Accelerating Clean Energy Transitions 39 Jesse D. Jenkins and Valerie J. Karplus 4. Border Adjustment Mechanisms: Elements for Economic, Legal, and Political Analysis 60 Julien Bueb , Lilian Richieri Hanania , and Alice Le Clézio 5. Support Policies for Renewables: Instrument Choice and Instrument Change from a Public Choice Perspective 80 Erik Gawel , Sebastian Strunz , and Paul Lehmann II I . I NS T I T U T I O N S A N D GO V E R N A N C E 6. Varieties of Clean Energy Transitions in Europe: Political-Economic Foundations of Onshore and Offshore Wind Development 103 Stefan Ć etkovi ć , Aron Buzogány , and Miranda Schreurs 7. The Political Economy of Energy Innovation 123 Shouro Dasgupta , Enrica de Cian , and Elena Verdolini 8. Is Feed-In-Tariff Policy Effective for Increasing Deployment of Renewable Energy in Indonesia? 144 Dewi Yuliani 9. Do Political Economy Factors Matter in Explaining the Increase in the Production of Bioenergy? 163 Éric Nazindigouba Kere 10. Understanding Indicator Choice for the Assessment of RD&D Financing of Low-Carbon Energy Technologies: Lessons from the Nordic Countries 187 Jonas Sonnenschein 11. An Enquiry into the Political Economy of the Global Clean Energy Transition Policies and Nigeria ’ s Federal and State Governments ’ Fiscal Policies 209 David Onyinyechi Agu and Evelyn Nwamaka Ogbeide-Osaretin IV. A CTORS AND INTERESTS 12. Governing Clean Energy Transitions in China and India 231 Karoliina Isoaho , Alexandra Goritz , and Nicolai Schulz 13. Towards a Political Economy Framework for Wind Power: Does China Break the Mould? 250 Michael R. Davidson , Fredrich Kahrl , and Valerie J. Karplus 14. The Social Shaping of Nuclear Energy Technology in South Africa 271 Britta Rennkamp and Radhika Bhuyan 15. European Energy Security: Challenges and Green Opportunities 292 Almas Heshmati and Shahrouz Abolhosseini V . I N CU M BENC Y 16. Incumbency and the Legal Con fi guration of Hydrocarbon Infrastructure 313 Ross Astoria 17. Global Trends in the Political Economy of Smart Grids 329 Cherrelle Eid , Rudi Hakvoort , and Martin de Jong 18. Falling Oil Prices and Sustainable Energy Transition: Towards a Multilateral Agreement on Fossil-Fuel Subsidies 349 Henok Birhanu Asmelash x Contents VI. S ECTOR REFORM 19. Post-Apartheid Electricity Policy and the Emergence of South Africa ’ s Renewable Energy Sector 371 Lucy Baker 20. Political Economy of Nigerian Power Sector Reform 391 Eric Kehinde Ogunleye 21. Climate Change Policy and Power Sector Reform in Mexico under the Golden Age of Gas 410 José María Valenzuela and Isabel Studer 22. Sell the Oil Deposits! A Financial Proposal to Keep the Oil Underground in the Yasuni National Park, Ecuador 430 Santiago J. Bucaram , Mario Andrés Fernández , and Diego Grijalva V II . S O C I A L I N C L U S I O N 23. Integrating Clean Energy Use in National Poverty Reduction Strategies: Opportunities and Challenges in Rwanda ’ s Girinka Programme 453 Chika Ezeanya and Abel Kennedy 24. Renewable Energy in the Brazilian Amazon: The Drivers of Political Economy and Climate 471 Sabrina McCormick 25. The Political Economy of Household Thermal Energy Choices in Developing Countries: Comparing the LPG Sectors in Indonesia and South Africa 488 Wikus Kruger , Louise Tait , and Jiska de Groot VI II . RE GIO N AL D Y NA MI C S 26. The Linkages of Energy, Water, and Land Use in Southeast Asia: Challenges and Opportunities for the Mekong Region 511 Kim Hang Pham Do and Ariel Dinar 27. The Political Economy of Clean Energy Transitions at Sub-National Level: Understanding the Role of International Climate Regimes in Energy Policy in Two Brazilian States 530 Jose A. Puppim de Oliveira and Celio Andrade Contents xi 28. Implementing EU Renewable Energy Policy at the Subnational Level: Navigating between Con fl icting Interests 547 Gilles Lepesant I X . M O V IN G FO R W A R D 29. Moving Forward 569 Douglas Arent , Channing Arndt , Finn Tarp , and Owen Zinaman Index 577 xii Contents List of Figures 2.1. Major transitional shifts in global energy supply, 1750 – 2015. 19 2.2. Coal, natural gas, and oil supply in the Netherlands, 1950 – 2010. 26 2.3. Generation from coal in Ontario from 2003 to 2014 (in %). 28 3.1. CO 2 prices in markets around the world, compared to the social cost of carbon. 42 3.2. Total welfare gain under four political constraint scenarios. 50 3.3. Total CO 2 emissions under four political constraint scenarios. 51 3.4. CO 2 price achieved under binding constraint on energy price increases, with and without employing revenues to subsidize clean energy. 52 3.5. Disposition of welfare under four political constraint scenarios. 53 4.1. Tradable emission permits. 64 8.1. Deployment status of renewable energy power plants after FIT policy. 152 8.2. Procedure for the issuance of licences for small hydropower generation. 155 9.1. Evolution of bioenergy production and number of producers. 164 9.2. Correlation between bioenergy, governance quality, and environmental policy stringency (EPS). 174 9.3. Correlation between bioenergy and macroeconomic policies of (a) fi nancial development, (b) trade openness, and (c) oil scarcity. 175 12.1. Installed solar power capacity and state governing parties in India. 240 13.1. Economic and political actors in key wind sector functions in China. 252 13.2. Break-even price for a supercritical coal unit in China as a function of operating hours. 263 14.1. Discourse coalitions in South Africa ’ s nuclear power programme. 276 15.1. Fuel-mix concentration level using HHI (2000 – 14). 302 17.1. Possible industry structures due to sector liberalization. 332 19.1. Time line of South Africa ’ s electricity policy: 1994 – 2015. 378 20.1. Electricity production from different sources, percentage share. 396 20.2. Natural gas proven reserves in top ten countries, 2011 – 15. 397 20.3. Gas production and utilization in Nigeria, 2004 – 14. 398 21.1. Gas prices and industrial tariffs. 418 22.1. Density distribution of the NPV of the expected oil revenue from the ITT block. 438 22.2. Density distribution of the NPV of the expected YGCs revenue. 440 22.3. WTI crude oil spot price and strike prices of ITT Initiative as forward contract, June 2007 – August 2013. 444 22.4. Spot prices of WTI crude oil, EUAs, and CERs, August 2008 – August 2013. 446 26.1. MR two-stage game. 525 28.1. Responses to question ‘ would you agree to a renewable energy facility in the vicinity? ’ (%), 2013. 552 xiv List of Figures List of Tables 2.1. Overview of rapid energy transitions 22 2.2. Households adopting improved stoves under the Chinese National Improved Stove Programme (NISP) and af fi liated provincial programmes 24 5.1. Transition instruments and their rent management potential: schematic overview 85 5.2. Schematic overview of major transition challenges beyond RES deployment 88 7.1. Political economy factors: hypothesis and proxy variables 132 7.2. Regression results using R&D intensity over value added as innovation proxy: one-year lag for all independent variables 133 7.3. Regression results using patent intensity over value added as innovation proxy: two-year lag for all independent variables 135 8.1. Regulation of feed-in tariff in Indonesia for various RE sources 149 8.2. List of guidance questions for key respondents 153 9.1. Expected signs of the explanatory variables 172 9.2. Tobit model with fi xed effect of bioenergy supply 178 9.3. Random effects probit model of the decision to produce bioenergy 179 9.4. Long-run analysis: impact of legal origins on bioenergy production 181 9.A1. Description and sources of data 184 10.1. Indicators used in the literature on LCET support policies 191 10.2. Overview of assessment indicators for public RD&D support to LCET, their acceptance, ease of monitoring, and robustness 194 13.1. Four dimensions of governance that affect power system outcomes 254 13.2. Actors and interests in annual generation planning in China 266 15.1. Power generation costs (2000 – 15) and cost outlook (2015 – 50) based on sources of energy, US$ per megawatt hour 296 15.2. Wind and solar energy consumption in 2010 – 14, in terawatt hour (TWh) 297 15.3. Energy security index for some countries in the European Union 302 15.4. Fuel-mix of primary energy consumption in seven European countries (%) 303 17.1. Summary of policy perspectives on smart grids 336 21.1. Key indicators of energy production and demand 412 21.2. INDC emissions and pledges (2013 – 30) (MtCO 2 e) 419 22.1. NPV of oil revenues from exploitation of the ITT block (US$ billions) 437 26.1. Selected aggregate indicators for the Mekong region (MR) and China in 2014 512 26.2. Territory of six countries and their contribution to the Mekong ’ s fl ow 515 26.3. Energy demand in business-as-usual and alternative scenarios 516 26.4. Number of hydropower development projects in the MRB 519 28.1. The ‘ standard ’ scenario for maritime pine in Aquitaine 553 xvi List of Tables List of Abbreviations 21CPP 21st Century Power Partnership ADB Asian Development Bank ADEME Agence de maîtrise de l ’ énergie AEC ASEAN Economic Community AFTA ASEAN Free Trade Area AGDI Agencia Gaucha de Desenvolvimento e Promoção de Investimento (Brazil) AGRESTE Service de la statistique, de l ’ évaluation et de la prospective agricole (France) AGW anthropogenic global warming ANBERD Analytical Business Enterprise Research and Development ANC African National Congress ANT actor network theory AOA Agreement on Agriculture APEC Asia-Paci fi c Economic Cooperation ARRA American Recovery and Reinvestment Act 2009 ASEAN Association of Southeast Asian Nations ASTAE Asia Sustainable and Alternative Energy Program BAT best available technology BAU business-as-usual BCAs border carbon adjustments BDEW Bundesverband der Energie- und Wasserwirtschaft BECCS bioenergy with carbon capture and storage BEE Black Economic Empowerment (S Africa) BEE Bundesverband Erneuerbare Energien BEPE Environmental Protection and Energy BEST Biomass Energy Strategy (Rwanda) BJP Bharatiya Janata Party (India) BMU Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (Germany) BMWI Federal Ministry of Economics and Technology (Germany) BNDES Banco Nacional de Desenvolvimento Econômico e Social (Brazil) BOF Budget Of fi ce of the Federation (Nigeria) BP British Petroleum BPD barrels per day BPE Bureau of Public Enterprises (Nigeria) BRICS Brazil, Russia, India, China, and South Africa BUSA Business Unity South Africa BWE Bundesverband Windenergie CAFTA China – ASEAN Free Trade Agreement CANACERO Cámara Nacional del Acero (Mexico) CAPEX capital expenses CAPS Centre d ’ Analyse, de Prévision et de Stratégie CAT Climate Action Tracker CBN Central Bank of Nigeria CCGT combined cycle gas turbine; CCS carbon capture and storage CDM Clean Development Mechanism CEEE Companhia Estadual de Energia Elétrica (Brazil) CEER Council of European Energy Regulators CEMAGREF Centre d ’ Étude du Machinisme Agricole et du Génie Rural des Eaux et Forêts CENACE Centro Nacional de Control de Energía (Mexico) CERI Centre for Educational Research and Innovation CERs Certi fi cates of Emissions Reductions CESPEDES Comisión de Estudios del Sector Privado para el Desarrollo Sustentable CEST Centro de Estudos Sociedade e Tecnologia (Brazil) CfD Contracts for Difference CFE Comisión Federal de Electricidad CHESF Hydroelectric Company of San Francisco CHP combined heat and power CME coordinated market economy CNI Confederação Nacional da Indústria (Brazil) CO 2 carbon dioxide CoP Conference of Parties to UNFCCC CoP1 First Conference of Parties to UNFCCC (1995) CoP15 Fifteenth Conference of Parties to UNFCCC (2009) CoP16 Sixteenth Conference of Parties to UNFCCC (2010) CoP20 Twentieth Conference of Parties to UNFCCC (2014) CoP21 Twenty- fi rst Conference of Parties to UNFCCC (2015) xviii List of Abbreviations COSS cost-of-service study CPC Communist Party of China CPUT Cape Peninsula University of Technology (S Africa) CRE Energy Regulatory Commission (Mexico) CSIR Council for Scienti fi c and Industrial Research (S Africa) CSP concentrated solar power CUB Citizens ’ Utility Board CUREJ College Undergraduate Research Electronic Journal DA Democratic Alliance (S Africa) DANIDA Danish International Development Agency DECC Department of Energy & Climate Change (UK) DEFG Distributed Energy Financial Group DER distributed energy resources DG distributed generation DGNREEC Direktorat Jenderal Energi Baru Terbarukan dan Konservasi Energi DISCOs distribution companies DME Department of Minerals and Energy (S Africa) DMEA Department of Mineral and Energy Affairs (S Africa) DMR Department of Mineral Resources (S Africa) DoE Department of Energy (S Africa) DPE Department for Public Enterprises (S Africa) DPI Database of Political Institutions DRS deposit and refund schemes DSB Dispute Settlement Body DSM demand-side management DSO distribution service operator DST Department of Science and Technology (S Africa) E3 Energy and Environmental Economics E3G Third Generation Environmentalism EC European Commission ECN Energy Commission of Nigeria EDPRS Economic Development and Poverty Reduction Strategy (Rwanda) EDSO European Distribution System Operators EEAG Environmental and Energy State Aid Guidelines EEG Energy Economics Group EFF Economic Freedom Fighters (S Africa) EGSS Environmental Goods and Services Sector EGUs electrical generating units List of Abbreviations xix