Policy Mix Effectiveness for Energy System Transformations: An Evidence-Based Approach

Climate change is one of the most challenging problems of the 21st century, with its repercussions spanning across multiple governance, economic, and societal levels. For this reason, decarbonising the energy system requires a comprehensive understanding of the interactions between policies and technological development. Even though the importance of policies for energy system transformations has been established, the existing empirical literature on climate policy effectiveness is primarily focused on which policies reduce emissions. Thus, it is often overlooked that transitioning towards a fully decarbonised energy system requires policy interventions that target not only the quantity, but also the quality of emissions reductions (Lilliestam et al., 2022). For example, even though policy instruments targeting efficiency gains of the existing energy infrastructure, such as carbon pricing, are necessary at an intermediate stage, they are not sufficient for effective RE development in the medium-run and for system-wide decarbonization in the long-run. To address this challenge, our study aims at shifting the focus of energy and climate policy narrative towards forward-looking decarbonisation strategies, using evidence-based approaches and investigating whether effective transition policies are characterised by different stages, initially targeting RE infrastructure development (Lilliestam et al., 2022). As a result, we ask three research questions: (1) Does the maturity of RE technologies determine which policy instrument types need to be deployed for effective RE development that is necessary for energy system transformations, (2) which policy instrument combinations have been the most successful in triggering RE development and (3) by how much have policies contributed in RE development compared to other factors, such as financial and electricity market dynamics. Focusing on the deployment of wind and solar technologies in 14 European countries and creating a comprehensive, open-access database that includes detailed time series data on policy instruments, we aim to address these questions by using a combination of econometric and state-of-the-art machine-learning methods. Moreover, enriching our framework with qualitative insights on successful policy sequencing, we leverage the advantages of both quantitative and qualitative approaches. Our preliminary findings suggest that effective policy design is indeed contingent on the technological maturity of the addressed RE technology, with RE development initially accommodated by investment-based and administratively-set price instruments, while market-based instruments trigger additional deployment when RE technologies become more mature. In specific, policy mixes associated with significant increases in wind installed capacity initially included instruments such as investment tax rebates and Feed-in-Tariffs (FiTs), while market-based instruments such as Feed-in-Premiums (FiPs) supported by auctions have been proven to accommodate additional deployment primarily at later stages of technological maturity. Finally, we also find that the share of wind installed capacity attributed to policies is higher than 50% on average since 1991 for the examined countries, suggesting a persistent policy effect in the development of RE infrastructure overtime.