Growth, austerity and 2020 targets – the case of renewables support Committee of the Regions Roundtable, April 26th Georg Zachmann

Potential output-enhancing stimulus?  Use stimulus spending to increase the potential output of the economy  Difficult task: –Find quickly deployable investment –At the same time, do not crowd-out private investment 2

Growth vs. austerity – the stimulus  Stimulus largely on consumption (reddish) 3 Tax cuts in % of GDP Spending measures in % of GDP Source: OECD

Growth-friendly austerity? In the short term:  Cutting public spending where private sector is likely to overcompensate In the long term:  Use the crisis imperative to cut the most distorting tax- breaks and unproductive public expenditures which flourished in good times 4

Growth vs. austerity – the austerity programmes  Austerity becomes more revenue centered 5 Greece Original version of IMF/EU Programme (May 2010) 11.1% GDP ( ) 47.8% expenditure 36% revenues 16.2% * structural ref. Reinforced Medium Term Fiscal Strategy (June 2011) 12% GDP ( , on top of what is already implemented) 52.5% expenditure47.5% revenues Property tax on electricity- powered buildings (September 2011) About 1% GDP per year ( ) --100% revenues Portugal IMF/EU EFF Programme (May 2011) 10.6% GDP ( ) 68% expenditure32% revenues Emergency measures due to fiscal slippages (August 2011) 1.1% of GDP (2011) --100% revenues

The case of renewables 6

Why state support for renewables?  Emission reduction –Direct: lower emission per Joule –Indirect: lower emission reduction cost (learning)  Security of supply –Lower energy import dependency  Industrial policy –Local value content –Infant industry Global benefit National benefit

Renewables deployment cost  Massive spending on deployment of renewables in recent years  => but is this really the right approach for reaching the targets ? 8 Wind Deployment cost in Million USD Solar Deployment cost in Million USD FranceGermanyU.K.SpainFranceGermanyJapanU.S. 1980s s 467, , , s 12,93739,808 11,736 27,940 6, ,944 26,219 17,545

R&D vs. Deployment cost 9 Wind RD&D SUM Total RD&D in Million USD (2010 prices and PPP) Solar RD&D SUM Total RD&D in Million USD (2010 prices and PPP) FranceGermanyU.K.U.S. FranceGermanyJapanU.S. 1980s s s Wind Deployment cost in Million USD Solar Deployment cost in Million USD FranceGermanyU.K.U.S.FranceGermanyJapanU.S. 1980s s s

Drastic cut-back in some renewables support schemes 10 Czech Republic: From 1 January 2011, the FIT for PV systems put into operation between 1 Jan 2009 and 31 Dec 2010 is subject to a tax of 26 %.

But huge fall-out of sudden stop  Closure of parts of the supported industry  Drop in credibility -> makes future programmes more expensive  Credibility is as important for future policy efficiency as credit ratings 11