Of Markets and Subsidies: Counterintuitive Policy Trends for Clean Energy in the European Union and the United States

Abstract

The United States is commonly characterized as a nation with a deep distrust of big government and a strong commitment to markets and competition. In contrast, the prevailing image of the European Union is that of a highly bureaucratized polity favoring interventionist economic governance over free-market capitalism. In the context of clean energy, however, these roles appear to be somewhat reversed. A top-level survey of the U.S. clean energy policy landscape reveals a surprisingly pervasive reliance on government subsidies with few, if any, competitive elements. E.U. clean energy policy, meanwhile, reflects an unexpected commitment to market-based instruments and competition. This essay suggests that these counter-intuitive policy trends can be explained by critical differences in the black-letter law of both jurisdictions and its enforcement in the courts, among other factors. Unlike their American counterparts, E.U. judges prioritize the timely transition to a low-carbon energy economy over unrestricted competition among member states. As the European Union pushes for greater intrastate competition in clean energy policy, the United States focuses instead on defending the Founding Fathers’ ideal of unfettered interstate competition.

Keywords: energy policy, federalism, climate change, renewables, renewable energy, energy efficiency, comparative law, commerce clause, state aid

JEL Classification: H10, H70, K32, L10, O30, O10, O38, Q20, Q28, Q40, Q42, Q48