Energy market liberalization and renewable energy policies in OECD countries

Abstract

This paper investigates the effect of energy liberalization, compared to other drivers, on policies that support renewable energy in a long panel of OECD countries. We estimate this effect by accounting for the endogeneity of liberalization related to joint decisions within a country’s energy strategy. Using regulation in other industries as instruments, we find that energy liberalization increases public support for renewable energy. The effect of liberalization is the second largest after the effect of per-capita income and is mostly driven by reductions in entry barriers, while the effect of privatization is unclear. This finding suggests that a reduction in the monopolistic power of state-owned utilities has a positive effect on renewable energy policies when various types of actors are ensured access to the grid instead of it being provided to only a few large private firms.