A Free-Market Environmentalist Transition toward Renewable Energy: The Cases of Germany, Denmark, and the United Kingdom

A Free-Market Environmentalist Transition toward Renewable Energy: The Cases of Germany, Denmark, and the United Kingdom. William Hongsong Wang, Vicente Moreno-Casas, Jesús Huerta de Soto. Energies 2021, 14(15), 4659; July 31 2021. https://doi.org/10.3390/en14154659

Abstract: Renewable energy (RE) is one of the most popular public policy orientations worldwide. Compared to some other countries and continents, Europe has gained an early awareness of energy and environmental problems in general. At the theoretical level, free-market environmentalism indicates that based on the principle of private property rights, with fewer state interventionist and regulation policies, entrepreneurs, as the driving force of the market economy, can provide better services to meet the necessity of offering RE to protect the environment more effectively. Previous studies have revealed that Germany, Denmark, and the United Kingdom have made some progress in using the market to develop RE. However, this research did not analyze the three countries’ RE conditions from the perspective of free-market environmentalism. Based on our review of the principles of free-market environmentalism, this paper originally provides an empirical study of how Germany, Denmark, and the United Kingdom have partly conducted free-market-oriented policies to successfully achieve their policy goal of RE since the 1990s on a practical level. In particular, compared with Germany and Denmark, the UK has maintained a relatively low energy tax rate and opted for more pro-market measures since the Hayekian-Thatcherism free-market reform of 1979. The paper also discovers that Fredrich A. Hayek’s theories have strongly impacted its energy liberalization reform agenda since then. Low taxes on the energy industry and electricity have alleviated the burden on the electricity enterprises and consumers in the UK. Moreover, the empirical results above show that the energy enterprises play essential roles in providing better and more affordable RE for household and industrial users in the three sampled countries. Based on the above results, the paper also warns that state intervention policies such as taxation, state subsidies, and industrial access restrictions can impede these three countries’ RE targets. Additionally, our research provides reform agendas and policy suggestions to policymakers on the importance of implementing free-market environmentalism to provide more efficient RE in the post-COVID-19 era.

Keywords: free-market environmentalism; renewable energy; entrepreneurship; public policy; Germany; Denmark; United Kingdom; European Union; EU Green Deal; energy transition; energy production; electricity prices; taxation; state subsidies; industrial access restriction; decision-making; political economy

5. Conclusions

Based on the review of the theoretical principles of free-market environmentalism, this paper has originally provided an empirical study of how Germany, Denmark, and the UK partly conduct free-market-oriented policies to successfully achieve their policy goal of broader use of RE since the 1990s.

The paper’s empirical results show that in 28 years, from 1990 to 2018, all three countries have shown positive features in their respective RE transitions. This tendency is especially evident for the increasing trend in the share of RE in gross electricity production and gross available energy and the decreasing trend in GHG emissions. However, as the supply of RE increased, the prices of electricity in the three countries did not show the same downward trend. This result alters the traditional view on these countries’ energy transitions, with the UK being more successful in a critical aspect of any energy transition: affordability.

Simultaneously, by measuring the specific data on taxation, state subsidies, and industrial access restrictions in the three sampled countries, we pointed out how these interventionist and regulation policies have caused damage to the three countries’ RE transition goals. Given free-market environmentalism, the cases of Germany and Denmark serve to illustrate how vital the entrepreneurship-based bottom-up forces (led by organizations and entrepreneurs in the form of RE cooperatives) are for the relative success of an energy transition. The German experience emphasizes political decentralization for decision-making and a certain freedom in the RE market. Inside this framework, a wide range of decentralized initiatives still thrive. This policy is the reason for the country’s energy transition success. However, there are distorting effects of government intervention, such as high electricity prices. They are caused by taxes, subsidies, and industry access restrictions. In general, Germany’s energy prices are not entirely market-oriented but are taxed and subsidized by the German government. As we have pointed out above, Germany’s energy prices are artificially high due to the FIT system. Therefore, Germany cannot be considered an ideal sample of free-market environmentalism. As previous research indicated, we also suggest Germany reduce the degrees of the above three interventionist policies as best as possible to enhance RE production and reduce electricity and RE prices.

Like the German case, the Danish energy policy has not wholly followed the principles of free-market environmentalism due to taxes, subsidies, and industry access restrictions. Denmark’s high electricity prices are due to high production costs and high taxes. As a result, Denmark faces a tough challenge to achieve an efficient and affordable RE transition concerning electricity prices. As previous research indicated, we also suggest Denmark should conduct tax reduction for its RE industry and eliminate state subsidies and industry access restrictions. However, despite the above policy deficiencies, Denmark is managing a RE transition due to the essential roles of decentralized local organizations and entrepreneurial activities. Moreover, more market-based RE innovation has created more jobs and reduced more GHG emissions since 1990. Even the literature that was not in favor of free-market environmentalism also acknowledged the Danish success in RE transition and its community and entrepreneurship-based characters [23].

On the other hand, compared with Germany and Denmark, the UK has maintained a relatively low energy tax rate and opted for more pro-market measures since the Hayekian-Thatcherism free-market reform of 1979. Fredrich A. Hayek’s theories have strongly impacted its energy liberalization reform agenda since then. Low taxes on the energy industry and electricity have alleviated the burden on electricity enterprises and consumers. Electricity prices have remained relatively low since 1990. However, interventionist policies such as state-regulated auctions and industry access restrictions have obstructed its energy transition. Moreover, RE policies are not as decentralized as Germany and Denmark, although RE innovation has increased in the three countries. Despite not having a purely free-market environmentalist energy policy, the UK has come closer to free-market environmentalism than the other two countries. Contrary to what some literature posits, the UK is achieving energy transition at a good pace, even beating Germany and Denmark by containing the rise in electricity prices. Therefore, with less intervention in the future, a better conducted RE market process could provide better conditions for British RE development.

Thus, during the post-COVID-19 era, to attain economic recovery and achieve a more advanced level of RE and protect the environment, it is essential to respect the principles of private property rights and free-market price coordination to acquire more and better RE. Hence, EU policymakers should adopt its RE policy from the perspective of free-market environmentalism to conduct better entrepreneurship for RE. Government RE’s intervention-regulation policies such as taxation, subsidies, and industry restrictions infringe on private property rights and cause economic discoordination and zero-sum games. Moreover, although the UK has not been an EU member since Brexit, its precious and successful experience of energy liberalization since the 1979 Hayekian-Thatcherism free-market energy reform could help other European countries to achieve better RE production and affordable energy prices. The UK experience and the free-market environmentalist policies that Germany and Denmark conduct could help other countries globally. Additionally, the empirical results in this paper show that the result of free-market environmentalism should be implemented over a long period. Policymakers should perceive that the free-market environmentalist policy approach and the entrepreneurial production of RE take time. Any interventionist eager for quick success may reverse the policy results. Hence, respecting entrepreneurship and reducing state intervention or regulation as much as possible is what global policymakers should execute during the post-COVID-19 era for a better energy transition.