An analysis of the effect of regulation and business environment on installed power capacity of renewable sources of energy in the EU-15

Abstract

The implementation of measures to promote renewable energy sources (RES) has shown to have a significant impact in reducing CO2 emissions and, at the same time, promotes technology substitution and changes in the energy production and consumption mix. In this paper, we look at RES regulation measures together with variables capturing economic freedom, business and investment freedom, difficulty of starting a business and cost of contract enforcement and look at assessing the effects of these on the development of new installations of RES. Our analysis shows that not only RES regulation is significant in promoting increased RES capacity but it does so in the presence of the correct signs of these other market variables: higher economic and investment freedom, less complicated procedures for starting up a business and lower cost of contract enforcement, all have a positive effect in installed RES capacity. Our results have significant policy implications as they point out that RES regulation and market initiatives go in tandem in promoting higher use of RES in energy production. These are separate channels with which policy makers can work to affect many positive spillovers that extend from higher investment activity, to energy innovation and lower emissions.