When Competition Plays Clean: Industrial Organization and Renewable Energy Politics

Nathan Lee, Stanford University asks When Competition Plays Clean: Industrial Organization and Renewable Energy Politics.

ABSTRACT: Why do some governments adopt renewable energy policies while others do not? I argue that polities with deregulated energy markets are more likely adopt renewable energy policies because market competition undermines the political power of legacy producers. Using a generalized difference-in-differences analysis, I show that U.S. states that adopt electricity deregulation laws are subsequently 38 percentage points more likely to adopt a renewable portfolio standard and 15 points more likely to adopt a cap-and-trade program. I argue that this pattern is driven by a redistribution of industry interest-group power: deregulation leads to a 20 percentage point decline in the market share of legacy producers (utilities) and a corresponding increase in market share for independent producers. Following deregulation, independent producers become more politically active and also disproportionately invest in renewable energy. These findings have implications for both energy policy as well as the study of industrial interest-group competition more generally.