Policy legacies and energy transitions: Greening policies under sectoral reforms in Argentina and Chile

Abstract

Under what conditions do greening policies lead to a fast deployment of solar and wind energies? Environmental economics assume that market factors and technological innovations are the main drivers of energy transitions. While these assumptions sometimes hold for well-functioning markets; in emerging economies, the combination of scarce capital, weak institutions, and market distortions creates specific challenges that make their paths to clean energies different from those of developed states. I analyze greening reforms of the electricity sector in Argentina and Chile, exploring instances of success and failure. Using archive data and interviews to stakeholders, I explain how previous sector structures created different market distortions that hindered an effective electricity transition even in the context of significant cost-savings from investment in new technologies. Successful greening policies entailed broader electricity-sector reforms that removed previous binding constraints and restructured incentives for key private-sector stakeholders. I corroborate this argument by employing synthetic control methods to evaluate policies’ impact. I show that broad greening policies led to a significant penetration of renewable energies: by 2020 the share of solar and wind energies in Argentina and Chile were about 7.3% and 13.6% higher than in the counterfactual scenarios in which the greening reforms had not occurred.