Save the Planet or Grow Our Economy? Government Support of Solar Power

Let’s start with the good news. The photovoltaic (PV) generation of electricity has become more and more economical thanks to rapid improvements in technology, making fossil fuels and their effects on global warming a shrinking threat to our future. Many saw this coming because PV is a semiconductor technology, and as any computer user knows, semiconductor technology improves quickly. And there is more good news. What drives much of the actual installation of PV power generation is families and firms, who gain much more from their power plants if they can sell the electricity to the network when they are not using it. If my house uses no electricity when I’m at work, the electricity it generates during that time can be sold to the utility company and power my workplace. This has been made easier too, through government intervention, establishing rules to force utilities to buy power from PV plants, often at high prices.

I have hinted that there is bad news too, but I should right away say that the news is not very bad. Quite simply, the suspicion that governments don’t make such rules to save the planet is quite right, and evidence is found in a paper in Administrative Science Quarterly by Panikos Georgallis, Glen Dowell, and Rodolphe Durand. The key to showing this is to look for differences in which governments were among the earliest to make rules forcing utilities to buy PV power. If there are no systematic differences, then maybe the world’s worry about global warming was the only mechanism at play. If there are differences depending on a country’s exposure to rising ocean levels, then a more local worry about global warming would be at work. If there are differences depending on the state of the national PV component industry and its adversaries—other forms of power generation—then we know that the support of PV has an economic component.

You have likely guessed already that nations support solar power to grow their local PV industry. The simple indicator of this is that a stronger PV industry means more government support, but there are also other indicators. The support is stronger if the firms participating in the PV industry are dedicated to this form of power generation only, instead of being diversified but traditional power producers.

The effect of an adversary is particularly interesting. If there is a strong traditional power industry, it may not consider the emerging industry a threat. But if it does, a battle for government attention and assistance ensues. In this case, the PV industry benefits from increased coherence, which means not having traditional power firms among its ranks. And when the emerging PV industry is coherent, it actually gets more government support if it faces a strong rival sector.

So we know that governments see solar power as more important for saving the world if they have a coherent local industry begging for help and if it faces strong opposition from the incumbent energy industry. That’s not the most virtuous motive we can imagine, but it has been good enough for the PV industry to develop fast and to gain strong footholds in many developed economies and some developing economies. Selfish action can also help the planet.

Georgallis, Panayiotis, Glen Dowell, and Rodolphe Durand. 2018. "Shine on Me: Industry Coherence and Policy Support for Emerging Industries." Administrative Science Quarterly forthcoming.