Investment Subsidies Research Articles

Reduced renewable energy stability in India following COVID-19: Insights and key policy recommendations

The COVID-19 pandemic has dramatically altered global energy consumption, particularly affecting investment in renewable energy projects. In India, strict shelter-in-place orders enforced during March 2020 have since led to a considerable change in public and private sector investments in planned renewable energy installations.In this paper, we attempt to highlight trends in energy consumption and installed renewable energy capacity noted in India during a period concurrent with the shelter-in-place orders. We discuss recent policy measures and additions to installed renewable energy capacity, and propose key policy recommendations that may help the sector adopt a growth trajectory similar to one noted pre-pandemic.This paper is organized into four main parts. In the first section, we draw focus to India's renewable energy policies and pay special emphasis on recent interventions and campaigns targeted towards achieving high growth rates in the sector. We briefly discuss the need for effective public-private partnerships in order to meet these targets. In the second part, we quantitatively characterise the growth of renewables in India. We present an overview of several mechanisms and missions the government has launched in line with their policy to mitigate the environmental impact of India's energy mix. In the third part, we analyse the decrease in electricity demand in India from 24 March to 30 June 2020, a period concurrent with shelter-at-home orders issued by the Government. We also characterise changes in installed renewable energy capacity between March to December 2016–2020 to provide causal evidence of the effect of the pandemic on the growth of renewables. In this section, we also compile and analyse data on state-wise stressed assets across renewable energy generators in the country. Lastly, in the fourth and final portion of this paper, we highlight policy recommendations that may help the sector overcome logistical and financial bottlenecks in the short-term. We do this with the hope of outlining key measures that decision makers may employ to achieve pre-COVID sectoral growth in the long term. Our recommendations cover three different policy instruments: investment subsidies, operational subsidies, and recommendations for DISCOMs.

Robust stimulus of private investment: Tax rate cut or investment subsidy?

Robust stimulus of private investment: Tax rate cut or investment subsidy?

Fiscal incentives and industrialisation: the case of Kachchh, Gujarat

Kachchh had suffered a major earthquake in 2001, resulting in extensive destruction of the area and a large number of fatalities. The economic activities had come to a standstill. In order to regenerate the economic activities and employment in the district, industrial development was promoted by offering fiscal incentives. The central government had extended a waiver of excise, and central sales tax and the State Government offered other significant fiscal benefits like waiving of state sales tax and extending capital investment subsidy. This paper describes the growth of the industry in the region during the incentive period. It explores if the location-based fiscal incentives have led to attracting investments to the region on a sustained fashion. The consequences of this development on the local livelihoods, employment and environment have also been studied. We have relied on personal interviews with various stakeholders, unpublished data from the industries department and other published data and literature for the analysis.

Incomplete markets and parental investments in children

The effect of incomplete markets on parental investments is investigated. Uninsured risk and credit constraints can distort the timing of parental investments, causing them to be delayed relative to what would occur under full-insurance. Age-dependent subsidies, taxes or transfers can all possibly correct this. Analytical results are provided, and a numerical life-cycle model provides quantitative results. Data on ability and parental investment dynamics are used to calibrate the model. A sequence of optimal policy experiments is conducted beginning with a simple reform of the tax and transfer schedule and ending with more complex parent-specific tax parameters and investment subsidies, all of which vary with child age. The final experiment generates substantial improvements in the ability distribution and a consumption equivalent welfare gain that is 2.5 times as large as simply reforming the tax schedule. About 1/4 of this incremental gain results from including child-age dependent policies that alleviate distortions of parental investment timing.

Role of EU Funds in Financing the Activity of a Local Government in Poland from 2011 to 2020

Purpose: The aim of the article is to present benefits and consequences of the use of EU funds by a local government in Poland. Design/Methodology/Approach: This paper uses the regulatory analysis method and the statistical descriptive method. This article is the result of a broad research conducted in Poland in 2020. Findings: Based on the results of empirical research, the article shows that one of the sources of financing a developmental activity of a local government are EU funds. Poland benefitted from these sources even before the pre-accession period, but the wide access to EU money occurred after 2004 when Poland joined the European Union. Then, it was possible to reach EU funds at the much larger scale to finance and co-finance programmes and projects aiming at the reduction of disparities between individual states and regions of the European Union. Practical Implications: Poland’s accession into the European Union enabled the local government units to obtain financial resources for the developmental activity. The LGU obtained access to non-repayable sources of financing the EU programmes and projects. However, obtaining these resources requires incurring own expenditures i.e., co-financing the EU projects. In the meantime, the surpluses of the current incomes over the current expenditures are not able to secure the own contribution of the LGU. Thus, the local government generally has two options; it should either resign from applying for the EU funds or secure the contribution with their own external financial sources i.e., credits, loans, or issuance of securities. The latter solution relates to indebtedness of the local government. Originality/Value: Considering that the inflow of the funds from the budget of the European Union is an extremely important and cheap source of financing development (which is likely to be limited for Poland in next perspectives), it seems that systematic targeted subsidies for investment should be planned in the state budget or low-interest loans for investments, for the LGU, securing them their own contribution.

Determinants of economies of scope in retail

This paper studies the determinants of economies of scope and quantifies their impact on the extensive and intensive product margins in retail. We use a framework based on a multiproduct technology to model stores’ incentives to expand product variety. Using novel Swedish data on product categories and stores, we find that high-productivity stores offer more product categories and sell more products of all categories. Stores with high-demand shocks specialize in fewer product categories and sell more products of top-selling categories. Policy simulations of regional programs that target the determinants of economies of scope show that investment subsidies and mentoring support for low-productivity stores increase the number of product categories and sales per product category, especially benefiting stores in rural markets.

The investment behaviour of dairy farms in transition economies

ABSTRACT This article investigates dairy farm investment behaviour and the presence of soft budget constraints in the dairy farms of Baltic and Central European transition countries – Estonia, Hungary and Slovenia – using individual dairy farm accountancy panel data for the years 2007–2015. The empirical results confirm that gross dairy farm investment is positively associated with gross dairy farm investment for the previous year for financially unconstrained dairy farms, and negatively for financially constrained dairy farms. It is also positively associated with public investment subsidies, and, except for Slovenia, with growth in real sales for financially unconstrained dairy farms. Mixed results are found for gross dairy farm investment squared and cash flow variables. A particularly significant negative cash flow regression coefficient implies significant soft budget constraints for financially unconstrained Estonian and Slovenian dairy farms, while insignificant cash flow regression coefficients imply weak soft budget constraints for financially unconstrained Hungarian dairy farms.

Optimal Government Incentives to Improve the New Technology Adoption: Subsidizing Infrastructure Investment or Usage?

To promote new technology adoption, governments around the world are contemplating different ideas to develop effective subsidy policies. At the new technology infrastructure investment stage, governments can use investment subsidy to reduce the new technology firms' investment cost; at the market stage of promoting the new technology, governments can use usage subsidy to reduce consumers' cost of using the service provided by the new technology firms. In this study, we develop a game-theoretic model to examine the impact of both investment subsidy and usage subsidy on the new technology adoption. We find that both the investment subsidy and usage subsidy can entice the new technology firms to increase the infrastructure investment level so as to further improve the market penetration of the new technology. Next, by also examining the optimal government subsidy policy subject to a budget constraint, we find that the optimal government subsidy policy depends on both the government's objective function and the amount of the budget. Specifically, when the budget is low, both investment subsidy and usage subsidy are equally effective in improving market penetration, consumer surplus, firm profit, and social welfare. However, when the budget is high, it is optimal for the government to offer investment subsidy only to maximize the market penetration of the new technology; while it is optimal for the government to offer usage subsidy only to maximize consumer surplus or social welfare. Our results can serve as guidelines for the government when designing the optimal subsidy programs to achieve different goals associated with new technology promotion.

Subsidizing Gentrification: A Spatial Analysis of Place-Based Tax Incentives

Place-based tax incentives, such as the New Markets Tax Credit (NMTC) and Opportunity Zones incentives, are often used to promote investment in low-income neighborhoods. However, not all low-income neighborhoods have an equal need for investment subsidies. Subsidies for investment in already gentrifying neighborhoods, for example, may reflect inefficient inframarginal investment, and they may lead to inequitable outcomes. Critics fear that when gentrifying neighborhoods are eligible for tax incentives, they will draw investment away from the neighborhoods that need it most. However, few studies have provided empirical analysis to assess whether these concerns have merit. Through a novel geospatial analysis of the location patterns of tax-subsidized projects, this Article provides new evidence that critics’ concerns are justified. This Article analyzes 15 years of NMTC data to explore the location patterns of tax-subsidized projects in 20 U.S. cities. It employs two spatial analysis methods, quadrat density analysis and negative binomial regression analysis, to describe the location patterns of NMTC projects and their relationship to two variables known to correlate with gentrification: high vacancy rates and increasing rental rates. The quadrat density analysis reveals that, in most cities, NMTC project density is highest in eligible census tracts that had high vacancy rates, increasing rents, or both. The results of the negative binomial regression analysis confirmed that, in many cities, high vacancy rates or rent increases were statistically significant predictors of NMTC investment. Together, these results provide new evidence that gentrifying census tracts may draw tax-subsidized investment away from other eligible areas. They also suggest that a commonly proposed Opportunity Zones reform—to add statutory safeguards modeled after those in the NMTC—would fail to prevent tax-subsidized investment in places that are already gentrifying. The observed spatial patterns reflect inefficient allocations, limit the NMTC program’s ability to promote equitable change, and cast doubt about whether federal regulators can effectively shape program outcomes. Opportunity Zones are likely to have similarly inefficient and inequitable outcomes. Therefore, this Article argues that statutory and administrative reforms are necessary to reduce the frequency at which tax incentives are used to subsidize investment in neighborhoods that are already gentrifying. This study has profound implications for the $5 billion per year federal NMTC program, the $3.5 billion per year federal Opportunity Zones program, and state-level tax incentives modeled after these federal tax laws.

STATE POLICY OF SOCIAL AND ECONOMIC STABILIZATION IN THE CONTEXT OF DECLINING FINANCIAL AND ECONOMIC EFFICIENCY OF ENTERPRISES

Constant transformations, diversity and variability of the economic environment are the main reasons for negative changes in the company's activities. Such changes have a significant impact on the state of the enterprise and, consequently, on its stability. An analysis of the activities of enterprises in recent years has shown that many of them have suffered losses and bankruptcies. Of course, this process can be attributed to the difficult economic situation that has occurred in the country in recent years. However, as practice shows, most of the loss-making enterprises did not pay enough attention to monitoring socio-economic stabilization. It is necessary to proceed from the fact that socio-economic stabilization is not an end in itself, but a means of ensuring sustainable economic growth and raising the level and quality of life of the population. Therefore, it is important not only the current state of the economy, but also what social methods it has achieved: benefits, subsidies for investment in people, science, infrastructure, by depleting resources for their own development or based on improving the efficiency of economic entities, creating a competitive environment . This process is important in studying the ability the company to counteract the negative effects of external and internal environment.

POLITYKA ZATRUDNIENIA W POLSCE I JEJ DOŚWIADCZENIA DLA UKRAINY

A significant part of the state’s social policy is employment policy, which is one of the most important macroeconomic parameters. Employment affects the income of the population and general well-being. Poland’s positive experience in these matters is especially important for Ukraine, which as a result of the pandemic has found itself in a more difficult social situation than most European countries. In Poland, the issues of social policy models have been undertaken for many years by many researchers: Chojnacka, Gomułka, Frączak and Wygnański, Mendell et al. These authors focused on the issues of social transformation in Poland, social and employment policy, and financial aspects of Poland’s development. The aim of the article is to review the positive experience of employment policy in Poland with a recommendation for its application in Ukraine. The research methods used in the article are literature analysis (review of current research in the field of social policy with special emphasis on employment policy and Polish state statistics) and taxonomic methods used to determine the social development of Poland and changes in the labor market and the method of comparative analysis. The main features of the Polish social model are: stable economic development; low unemployment; increase in average wages; relatively small regional differences in the unemployment rate; labor market stability and its ability to adapt to new challenges. Poland is an attractive country for Ukrainian youth. The key to the economic development of Poland is the intensive development of small and medium-sized enterprises. Appropriate allowances and subsidies for foreign investments have been introduced in Poland, which solve the problem of unemployment and support Polish business thanks to technological innovations. The main problems of employment policy in Ukraine are: low wages; high unemployment; departure of young workers and highly qualified staff abroad in search of higher wages. The main Polish experience of social policy that can be used in Ukraine is: development of corporate social responsibility; entrepreneurial activation of the unemployed; creation of favorable working conditions for employees through cooperation of the public sector with business entities; consultations with Poland and other European countries on the development of the labor market in Ukraine.

Modern Trends in the Production of Renewable Energy: the Cost Benefit Approach

In the article modern trends in the production of renewable energy were analyzed. It was determined that renewable energy sources have many undeniable advantages. First of all, they are much more environmentally friendly than traditional methods of generating energy based on the combustion of fossil fuels. Another advantage of renewable energy sources is their distribution. Unlike traditional energy fuel sources that units possess, renewable energy sources are available to most of the world's inhabitants. It was considered that today in the country there are a number of motivational tools that stimulate the development of green energy. It was proved that the ways of sustainization of the energy sector are associated with three main areas of energy use: electricity generation; heating and cooling of premises; driving vehicles. A system of subsidies for primary investments (purchase and installation of equipment), as well as the commercialization of «green» electricity (costs of entering the market, partial insurance of risks), is applied. It was determined that a separate page in the formation of alternative energy is the rivalry of two directions of its development, based on the creation of concentrated and deconcentrated (distributed) power plants. The first focuses on the concentration of production energy units (solar panels or wind turbines) in one area. The second direction is associated with the deconcentrating of energy sources, that is, the dispersal of individual capacities both across the territory and by forms of ownership. The transition to renewable energy sources is critical for most countries. This is one of the most important steps towards ensuring their energy independence and further restructuring of economic systems towards the formation of a «green» economy. It is gratifying that, along with other countries, Ukraine is making its efforts in this.

On the (un)successful deployment of renewable energies: territorial context matters. A conceptual framework and an empirical analysis of biogas projects

Given the goal set by the French government to open 1000 biogas plants by 2020, we believe it is important to investigate the factors linked to the success or failure of anaerobic digestion projects, especially as the inherent challenges mean that there are barely 300 in operation today. We thus developed a conceptual framework to help us to study territorial energy transition projects which we applied to an empirical analysis of the biogas production process. We conducted a quantitative study (logit model with 91 anaerobic digestion projects) and a qualitative study (49 semi-structured interviews and 455 articles from the regional daily press) to identify and understand the processes that anaerobic digestion projects go through for a successful outcome or, conversely, to ultimately fail. Our findings indicate that projects may be abandoned or interrupted due to the presence of a group of objectors who are often wary of such projects and do not trust the project leaders. Lack of anticipation and early dialogue tend to inhibit success. Furthermore, social acceptance appears to be correlated with proximity to the biogas plants but not to the size of the digester. Finally, operating and/or investment subsidies are seen to have a positive and significant effect on a project’s success. In this study, we highlight the need to implement place-based policies rather than one-size-fits-all policies to develop renewable energy in specific regions.

Operational costs and neglect of end-users are the main barriers to improving manure treatment in intensive livestock farms

Abstract Improving manure management is essential to actualise a more circular economy in agro-ecosystems. However, the drivers of and barriers to improving manure management and recycling are not well understood. We report farmers’ perceptions of manure management techniques on dairy and poultry farms, with a focus on anaerobic digestion, solid–liquid separation, and composting as common techniques used to facilitate manure management and valorisation. We conducted face-to-face interviews with 338 intensive livestock farmers in China. We hypothesised that farmers’ behaviour is differentially influenced by their perceptions of outcomes, social referents, and controlling factors of the manure management techniques, and by farm and farmers’ characteristics. Results indicated that the actual adoption of manure treatment techniques was limited on the surveyed farms (21% dairy farms, 0%–2% poultry farms; other farms were either not equipped with these techniques or the techniques were not used). Most farms had limited cropland and recycled a small but variable percentage of manure (15%–64% for nitrogen and 25%–95% for phosphorus). Farmers’ perceptions of the environmental benefits of manure treatment and incentives from government agencies were identified as key drivers for the adoption of manure management techniques. High operation cost, low benefit-cost ratios, technical failures, and lack of a functioning manure market were identified as main barriers. Farm scale, farmers’ education and identity also influenced farmers’ intention to use manure treatment techniques. Our results indicate that there is need for capacity building in the whole manure management chain, and for monitoring programmes. We argue that greater attention and governmental support should be allocated to (i) the actual operation of treatment techniques (instead of investment subsidies), and (ii) to the end-users of manure treatment products, who need appropriate application machines.

Potentials and obstacles for community anaerobic digesters in the United States: Evidence from a case study in Vermont

The two purposes of this study are to identify factors for the failure of 31% of community anaerobic digesters (CADs) in the United States through a case study of the development, operation, and shutdown of a $4.5 million CAD in Vermont, and to derive policy recommendations for sustainable development of CADs. While many studies have used aggregated data to assess the potentials, obstacles, and policy implications of on-farm biogas production, this paper contributes to the literature with a case study of a large CAD's investment and funding sources, feedstock utilization, energy output, and operating costs and revenues over multiple years. Empirical findings suggest that it is technically feasible to use cow manure and organic wastes from multiple sources to generate electricity, but the economic feasibility and returns depend highly on grants and subsidies for initial investments and on such factors as electricity price, feedstock availability and quality, and market price of renewable energy credits (RECs). Major reasons for the shutdown of this CAD, and likely a large proportion of other CADs in the country, include underestimation of technical problems and operating costs, overestimation of financial returns, and low REC price in the past several years. Future CADs should be invested in and operated by commercial enterprises and government subsidies, and public supports should be based on CADs' outputs such as electricity and utilization of their byproducts like waste heat and recycled nutrients. Also, the educational and research needs of nonprofit organizations could be met via collaboration with privately operated CADs.

Selection of cost-effective investment and output subsidies for eco-friendly products

Investment subsidies and output subsides are two common subsidy schemes used to promote the diffusion of eco-friendly products (EFPs). We adopted an analytical model to study which type of subsidies should be employed in promoting EFP diffusion in a competitive market of traditional products. Considering that there is a pre-investment in producing EFPs and EFP production technology is immature, we assume that a firm that wants to produce EFPs needs to bear both switching costs and higher manufacturing costs. When encouraging firms to produce EFPs, the results show that output subsidies are less costly when the switching costs are in the middle range. Meanwhile, in the case of a large potential market and low EFP manufacturing costs, output subsidies are more likely to be employed in attracting firms to produce EFPs. When encouraging all firms to produce EFPs, output subsidies are less costly, as they face a low switching cost. In the case of a small potential market, however, investment subsidies are more likely to be implemented. Finally, we tested the robustness of these findings in a market composed of more than two firms. We explored the subsidies in a circumstance where only one firm produced EFPs and found that investment subsidies were more likely to be implemented under these circumstances.

Employment and state incentives in transition economies: Are subsidies for FDI ineffective? The case of Serbia

This study analyses the effects of government subsidies for foreign direct investment (FDI) on employment at the municipal level in Serbia. It finds that the positive correlation of subsidies with employment is limited to the creation of subsidized jobs. In other words, subsidies are ineffective in creating additional jobs, beyond the jobs created by subsidized multinational enterprises (MNEs). There is no crowding-in and there is some evidence of crowding-out in the least developed municipalities. The municipalities that received subsidized investments did not experience higher employment in comparison with the period of no subsidies and in comparison with municipalities that never received subsidized investments. Some positive effects emerge, with a two-year lag, in the municipalities which, conditional on the level of development, lowered wages. The key policy implication is that subsidy-driven FDI policy, based on financial subsidies per job created, does not lead to a sustained employment growth pattern. Policymakers might need to target high value-adding activities of MNEs that induce the creation of domestic value added.

Green investment choice in a duopoly market with quality competition

Motivated by the fact that green investment and quality investment have become two vital long-term strategic tools for firms to improve their reputations and market competitiveness, this paper develops a game-theoretical model to study green investment choice decisions of two horizontally differentiated firms in the presence of quality competition. Given that the firms’ optimal green investment decisions do not always align with the environmental optimal objective, we further examine the motivation of government subsidy for green investment and the optimal subsidy programs. Three main findings are highlighted as follows. First, the internal relationship between green investment and quality investment plays a key role in firms’ green investment choices. Specifically, when green investment and quality investment are substitutes, no firm decides to make green investments, whereas when green investment and quality investment are complements, whether a firm makes a green investment depends on the green investment efficiency. Interestingly, with a moderate high green investment efficiency, the two ex-ante symmetric firms implement different technology investment strategies. Second, although green investment always benefits to curb total carbon emissions, a firm switching to green technologies does not always reduce its own emissions. Third, through different subsidy programs, the government can encourage firms to make green investments. When the subsidy is sufficiently high, the two firms can achieve a win-win outcome through green investments.

Promoting renewable energy through willingness to pay for transition to a low carbon society in Japan

This study aims to assess the impact of willingness to pay (WTP) on achieving future renewable energy (RE) resource targets in Japan. Electricity production from RE is an effective measure to mitigate climate change. As a policy to promote renewable electricity technologies deployment, the cost of RE is generally covered by a levy, which usually ignore user’s attitudes or affordability, and may become increasingly dissatisfied by consumer for its increase with the RE expansion. Considering the potentially crucial role of WTP in levy decision for RE, we developed a series of models to simulate WTP through 2030 under three RE development scenarios and two economic growth cases. This allowed evaluation of the necessary investment subsidies for adopting RE to meet national targets in each prefecture of Japan. Median WTP is estimated to increase from approximately 1000 to 2400 JPY/(household·month) during 2015–2030. The investment required to meet future RE targets decreases sharply with increases in WTP by consumers. In particular, for prefectures with high WTP such as Tokyo, the investment required could be covered only by consumers’ WTP; no subsidies would be required. These results highlighted the opportunities of WTP assessment for efficient utilization of government subsidies for shifting towards greater use of renewable energy with flexible energy polices by policy-makers.

Impacts of Investment Cost, Energy Prices and Carbon Tax on Promoting the Combined Cooling, Heating and Power (CCHP) System of an Amusement Park Resort in Shanghai

Poor economic performance has limited the diffusion of the combined cooling, heating, and power (CCHP) system. Various factors influence the economic performance of the CCHP system. To analyze the impacts of these different factors and promote the CCHP system, this study evaluated its comprehensive performance through a multi-criteria method, using an amusement park resort in Shanghai as a research case. First, three CCHP systems with different penetration rates were presented and simulated in a transient simulation model for comparison. The economic and environmental performance of these different penetration CCHP systems were evaluated based on the dynamic payback period and carbon dioxide emissions. The impacts of investment cost, energy prices, investment subsidy and a carbon tax on the economic performance of the three systems were discussed, and a sensitivity analysis was used to compare these factors. The results show that the current subsidy can reduce the economic gap between the CCHP system and the conventional system, but it still needs to be increased by 1.71 times to achieve market competitiveness of the CCHP system with 100% penetration under the current investment cost and energy prices. In addition, the introduction of a carbon tax could accelerate the promotion of the CCHP system. When the carbon tax reaches 25 $/ton, the CCHP system becomes the best choice of energy supply system.