Abstract
This paper studies the link between public policy and corruption for the case of wind energy. We show that publicly subsidized renewable energy can attract criminal appetites and favor the formation of criminal associations between entrepreneurs and politicians able to influence the licensing process. The insights of a simple model of political influence by interest groups are tested empirically using Italian data for the years 1990–2007. Using a difference in difference approach we quantify the impact of a Green Certificate policy aimed at supporting renewables, and find robust evidence that criminal association activity increased more in windy provinces after the introduction of the generous policy regime. The magnitude of the effect is large: the construction of an average wind park is associated with an increase in criminal activity of 6 % in the treatment compared to the control group. Our findings show that in the presence of poor institutions, even well designed market-based policies can have an adverse impact. The analysis is relevant for countries that are generally characterized by heavy bureaucracies, weak institutions and by large renewable potential.
Highlights
The aim of this paper is to study and quantify the effect of public policy on corruption
This paper studies the link between public policy and corruption for the case of wind energy
21 The figure displaying the development of the wind energy sector in the treated and control provinces, in terms of total capacity installed is reported in Appendix 1
Summary
The aim of this paper is to study and quantify the effect of public policy on corruption. Power generation and transmission as well as oil and gas are among the most bribery prone sectors, according to the Bribe Payers Index of Transparency International.. Power generation and transmission as well as oil and gas are among the most bribery prone sectors, according to the Bribe Payers Index of Transparency International.1 International organizations such as the World Bank, which have been involved in the financing of energy infrastructure in the developing world, have recognized the need to reduce corruption, often by trying to strengthen governance. In order to overcome these pitfalls, and following the liberalization of the Italian electricity market, in 1999 a market-oriented mechanism based on tradable green certificates (known as ‘‘Certificati Verdi’’, CV) was implemented; this required power producers and importers to have a minimum share of electricity generated by renewable sources. All the installed wind capacity is concentrated in the ‘‘Mezzogiorno’’, which hosts the largest wind potential (see Fig. 1 below)
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