Consumer-funded Policies in Energy Transition: An introduction, an analytical framework and empirical case studies from Germany and the UK

Abstract

In an effort to contribute to the existing literature on climate finance, this paper analyzes environmental consumer-funded policies. The logic in the unique political economy of consumer-funded policies lies in their ability to circumvent the state budget and avoid conventional budgetary scrutiny in legislative bodies. These features make these policies very convenient for policy makers. Over years, consumer-funded policies have helped governments finance energy transition without having to raise taxes. In addition to their fiscal convenience, these policies have also served as an incentive mechanism to increase energy efficiency and helped overcome state aid restrictions. However, the very factors that make consumer-funded policies attractive to policy-makers have also led to criticism, particularly concerning transparency, accountability, efficiency, and social equity. In response to these concerns, policymakers have implemented certain reforms to improve their practices of consumer-funded policies. By studying the energy transition experiences of Germany and the UK, this paper illustrates how the implementation of consumer-funded policies has evolved over time.

Keywords: Green energy transition, climate finance, policy instruments, renewable energy, Germany and the UK