Geoforum 38 (2007) 677–687www.elsevier.com/locate/geoforum

Anglo-Saxon and German approaches to neoliberalism andenvironmental policy: The case of Wnancing renewable energy

David Toke a,¤, Volkmar Lauber b

a Department of Sociology, University of Birmingham, Edgbaston, Birmingham B15 2TT, United Kingdomb Department of Political Science, University of Salzburg, Rudolfskai 42, A-5020 Salzburg, Austria

Received 22 August 2006; received in revised form 23 November 2006

Abstract

‘Renewable electricity certiWcate’ trading systems that have been established to promote renewable energy in the UK are a form ofneoliberal environmental governance introduced to assimilate environmental objectives with neoliberal hegemony. However, in this case,neoliberal ideological objectives have not been translated into practice since the British Renewable Obligation is not performing aseYciently as its proponents hoped. By contrast, so-called ‘Renewable Energy Feed-in TariV’ (REFIT) systems which involve the Wxing oftariVs for renewable energy by governmental intervention, are regarded as producing more eYcient outcomes. The use of the REFIT sys-tem in Germany is associated with an institutional tradition that places emphasis on giving competitive opportunities to new marketentrants in order to break up concentrations of market power by incumbents.© 2006 Elsevier Ltd. All rights reserved.

Keywords: Neoliberal; Environmental governance; Ordoliberal; Tradable green certiWcates; REFIT; Metaregulation; Renewable energy

1. Introduction

Neoliberalism is associated by most European academ-ics today with the so-called ‘Washington consensus’, apolitical economic paradigm that gained hegemony duringthe Reagan–Thatcher period (Helleiner, 2003, pp. 685–686;Peck and Tickell, 2002, p. 380). Indeed, it has ‘become acommonsense of the times’ (Peck and Tickell, 2002, p. 381).However, there has been little discussion of neoliberalism inthe context of the debate about diVerent systems of supportfor renewable energy, an important topic since renewableenergy is a key technological response to the problem ofglobal warming.

The central empirical contrast highlighted by this paperis between the so-called ‘market-based’ ‘Renewables Obli-gation’ (RO) in the UK and the allegedly more traditional,‘command and control’ ‘Renewable Energy Feed-in TariV’

* Corresponding author.E-mail addresses: d.toke@bham.ac.uk (D. Toke), volkmar.lauber@

sbg.ac.at (V. Lauber).

0016-7185/$ - see front matter © 2006 Elsevier Ltd. All rights reserved.doi:10.1016/j.geoforum.2006.11.016

(REFIT) operating in Germany (Morthorst, 2000). Wecompare these cases and discuss their relationship with neo-liberal theory.

Under the RO, renewable generators are issued with‘renewable obligation certiWcates’ (ROCs) in proportion tothe amount of renewable electricity generated. Electricitysuppliers have to supply a target portion of their electricityfrom renewable energy or will suVer penalties. Hence, thetheory is that the establishment of a market for ROCs willmean that the suppliers will make an eVort to purchase thecheapest ROCs, thus reducing the cost of fulWlling the ROtargets. By contrast, in Germany, the prices that renewableelectricity generators are paid for their electricity are set bylaw. Supporters of what looks like ‘neoliberal’ market-based ‘certiWcate’ systems claim that this will lead to lesscost-eYcient outcomes (Morthorst, 2000). We shall discussthe emergence and implementation of these diVerent sys-tems and relate them to theory on the implementation ofneoliberal strategies.

A study involving the German REFIT system is relevantsince Germany has the largest capacity of installed wind

678 D. Toke, V. Lauber / Geoforum 38 (2007) 677–687

and solar power worldwide and since its legislation inspiredsimilar regulation elsewhere although it is typically con-tested by neoliberals. The United Kingdom is relevantbecause of its long tradition of neoliberal policy andbecause it has what appears to be the largest existing exam-ple of a system based mostly on green certiWcates, at least interms of the size of its renewable energy target and the sizeof the electricity system.

We shall begin by discussing analysis of neoliberalism ingeographical and related literature and we shall link thisdiscussion to an analysis of neoliberalism and environmen-tal governance in particular. Then we shall discuss howthese debates have shaped policies to support the develop-ment of wind power in The UK and Germany.

2. Neoliberalism and environmental governance

According to Jessop (2002, p. 453), neoliberalism, in itseconomic sense, builds on classic liberal drives for anexpansion of the market economy through commodiWca-tion and use of monetarised exchange. ‘As a new economicproject oriented to new conditions, neoliberalism calls for:the liberalisation and deregulation of economic transac-tionsƒthe privatisation of state-owned enterprises andstate-provided services; the use of market proxies in theresidual public sector; and the treatment of public welfarespending as a cost of international production rather than asource of domestic demand’ (Jessop, 2002, p. 454).

Peck and Tickell (2002, p. 400) comment that neoliberal-ism ‘also exists in a self-contradictory way as a form of“metaregulation”, a rule system that paradoxically deWnesitself as a form of antiregulation’. New state and quasi-stateagencies are established wherein actors are enrolled to dothis regulation of constructed markets.

However, there is widespread appreciation of the multi-faceted character of neoliberalism. Jessop (2002) talksabout a ‘continuum’ of ‘radical system transformationfrom state socialism to market capitalismƒto more limitedpolicy adjustments’ (Jessop, 2002, p. 452). Peck and Tickell(2002, p. 400) argue that: ‘One of the most striking featuresof the recent history of neoliberalism is its quite remarkabletransformative capacity’. Heynen and Robbins (2005, 6)make a similar point.

Others argue that besides changing over time, neoliberalstrategies also change from place to place. Brenner andTheodore (2002, 350) discuss how ‘Thatcherism and Rea-ganism represented particularly aggressive programs ofneoliberal restructuring during the 1980s while more mod-erate forms of neoliberal politics were also mobilised dur-ing this same period’ in various states including Germany.DiVerent institutional histories and regulatory contexts willshape neoliberalism in diVerent ways, demonstrating strongproperties of path dependency (Brenner and Theodore,2002, p. 361).

Barnett (2004) goes further and questions the very utilityof the term neoliberalism, especially its use by left-leaningacademics. He argues that the contemporary Gramscian–

Foucauldian emphasis on hegemony and governmentality,the downwards direction of power and its responding resis-tance, does little to explain many areas of change in gover-nance structures which may be driven by the ‘pro-activerole of socio-cultural processes’ (2004, p. 10). Hence, as wediscuss later, diVerent versions of neoliberalism may pre-dispose Germany and the UK towards diVerent forms ofenvironmental governance in the Weld of renewable energy.

Perhaps Barnett goes too far in dismissing the utility of‘neoliberalism’ as a concept, but it is certainly the case thatthe implementation of neoliberalism occurs sometimes inresponse to popular pressures from below, including envi-ronmentalist inXuences.

McCarthy and Prudham (2004) stress how the founda-tions of liberal approaches to the environment hark back toLockeian stress on property rights, resonant with enclosurein Locke’s time and are called ‘accumulation by disposses-sion’ by Harvey (2003). Assignation of property rights overnatural resources is identiWed by neoliberals as the mosteYcient method of resource conservation. This is discussedby Robbins and Luginbuhl (2005, p. 52) in the case of wild-life resources. Such an approach diVers substantially fromenvironmental protection as practiced by the Keynesianstate, whose ‘proliferation’ of interventionist measures was‘ripe for neoliberal attacks’ (McCarthy and Prudham, 2004,p. 278).

Attacks on state-organised environmental governancewere buttressed by the work of ‘Chicago School’ econo-mists such as Coase (1960). Coase argued that the marketwas best placed to deliver the most economically eYcientoutcomes given an appropriate assignation of propertyrights.

However, intervention to protect the environment hasbeen less easy than others to dismantle because of populardemands for environmental conservation (McCarthy andPrudham, 2004, p. 278). While environmentalism has been‘a potent source of resistance to neoliberalism’ it has alsobeen the case that environmentalists have proposed mecha-nisms to protect the environment, such as emissions tradingregimes, that adopt neoliberal ideas. This has reinforcedneoliberal hegemony (McCarthy and Prudham, 2004, p.279).

The work of ‘New Resource Economists’ was mar-shalled in this context to formulate ‘free market’ solutionsto environmental problems (Robbins and Luginbuhl, 2005,p. 52; Dales, 1967; Philibert and Reinaud, 2004). Someanalyses (Philibert and Reinaud, 2004) contrast, on the onehand, ‘Coasian’, ‘free market’ solutions and, on the otherhand, traditional regulatory responses to environmentalproblems associated which had grown up as pragmatic stat-ist responses to emerging environmental concerns in the19th century, a leading example being the ‘Alkali Inspector-ate’ (Garner, 2000, p. 162). However, even Coase recognisedthat sometimes transaction costs might be so high as tomake traditional state-based regulation a necessity. More-over, the dividing line between traditional ‘command andcontrol’ and neoliberal rules is not always clear.

D. Toke, V. Lauber / Geoforum 38 (2007) 677–687 679

In reality, schemes for emissions trading and other typesof free market environmental governance involve state reg-ulation, and this has often included highly complex formsof standardisation, monitoring and governance structures.In an analysis of community forestry in North America,McCarthy (2006, p. 98) says neoliberalism is complex and‘especially diYcult’ to recognise in ‘real-world circum-stances’.

However, McCarthy sets out, in the context of commu-nity forestry, four elements of neoliberal governance. First is‘a strong reliance on market forces and metrics in the forma-tion of forest policy’. Second is ‘an increased appeal to thebeneWts of private property rights’. Third, ‘and most clearlyneoliberal, was a strong, clear shift away from the state-cen-tred, command-and-control regulatory approaches charac-teristic of the Fordist era and toward more voluntary andresults-based regulatory approaches’. ‘Fourth was a strongimpetus towards the devolution of governance functions togreatly expanded roles for non-state actors, including com-munities’ (McCarthy, 2006, p. 99).

Despite the discussion of the complexity, transformativenature and contextuality of applications of neoliberalism toenvironmental governance, little reference has been made inthe literature to the possible signiWcance, often even exis-tence, of a key early manifestation of neoliberalism. Werefer here to Germany where the battle between collectivistand liberal approaches to the economy was fought in ear-nest at the end of World War 2 resulting in a partial victoryfor neoliberal sympathisers of Hayek (1944) and his col-leagues. Given the earlier strictures about the ‘path depen-dent nature’ of the evolution of neoliberal policy designsand the diVerent rate and scale of neoliberal change incountries such as Germany (Brenner and Theodore, 2002),it may be helpful to look at the earlier history of neoliberal-ism in Germany. This has shaped the institutional environ-ment that country which has in turn inXuenced theemergence of REFIT.

3. Neoliberalism: German and Anglo-Saxon diVerences

Neoliberalism as a term was Wrst used by Europeaneconomists in the years before World War 2, as an alterna-tive to both laissez-faire and a statist economy (Nazi orSoviet). Among its proponents were Hayek (1944), but alsoEucken and other supporters of ordo-liberalism whoviewed themselves as neoliberal. Sometimes called the ‘Frei-burg School’ these neoliberals have diVerent attitudes tocartels and monopolies compared to the ‘Chicago School’.Authors such as Stigler (1968); Posner (2001) and Coase(1960) are examples of Chicago School authors. The Frei-burg School authors (ordoliberals) became inXuentialabove all in Germany, where they inspired government pol-icy particularly in the 1950s through (economic aVairs min-ister and later chancellor) Erhard and the social marketeconomy which he launched.

A combination of free market economics and a desirefor a social welfare system allowed the notion of the Ger-

man social market economy to develop. It is often now for-gotten that in West Germany of the 1940s and 1950s theneoliberals were seen to triumph over social democraticdesires for more state intervention (Giersch et al., 1992, pp.16–44).

However, despite the apparent common purpose of post-World War 2 German and other neoliberals, clear diVerencesexisted among them from the beginning. The ‘ordoliberal’and ‘Chicago School’ strands of neoliberalism have some-times been conXated, for example by Burchell (1996, 22–24).The view of the ‘ordoliberals’ of the ‘Freiburg School’ wasconditioned in particular by the experience of pre-war Ger-many when the economy was prepared for war by the Naziregime. Monopolies and cartels grew in inXuence and laissezfaire ‘was gradually transformed into a corporatist system’(Giersch et al., 1992, p. 27).

The ordoliberals wished to enshrine a principled opposi-tion to the operation of monopolies and cartels into law;such developments, they argued, would soon put an end tocompetition and create new centers of power. Both con-sumers and other potential producers stiXed by this powerneeded to be aVorded special protection against suchbeasts. According to Vanberg (2004, 10) ordoliberals suchas Böhm (1960) and Eucken (1990) insisted that an ‘eco-nomic constitution that in its entirety is tuned to upholdingcompetition in the face of uncompetitive interests’ isrequired (Vanberg, 2004, p. 10).

On the other hand, Posner, for example, who cites Sti-gler’s work as one of his intellectual inspirations, criticisesthe tenor of (relatively stringent) US anti-trust policy in the1970s. He expresses the view, associated with the ChicagoSchool, that cartels, even monopolies, do not always detractfrom the eYcient use of resources. (Posner, 2001, ix).

Commentators on recent legal judgements on anti-trustpolicy have noticed a divergence between US and Euro-pean approaches (Fox, 1997; Gerber, 2004). Indeed somehave likened such divergences to a division of opinionbetween the Freiburg School and the Chicago School’sinterpretations of neoliberalism (Horton and Schmitz,2002; Gerber, 2004). Certainly the Freiburg School hasbeen mentioned as an important inXuence on the develop-ment of EU competition law. In the EU ‘fairness’ is explic-itly enshrined in the Treaty of Rome as a criterion forjudgement of practices, and market share is an unoYcialmeasure of monopolisation. However, there is no such pro-vision in US anti-trust law. In the USA, measuring‘restraint of trade’ or ‘monopolisation’ has been, since the1980s, based on the economic outcome for consumers asmeasured through the price mechanism, not on theinfringement of rights (Horton and Schmitz, 2002; Gerber,2004). By contrast, in the EU the ‘fairness’ principle leadsto judgements being made on a rights based approach, withfair trading being assessed on the way that business is con-ducted rather than examination of the outcome.

Certainly, the neoliberalism of the late 1940s was trans-formed by the 1980s into a much more aggressive formcompared to its manifestation in the German social market

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economy. This settlement may have rested partly on main-taining an important share of private ownership, even ininfrastructure industries such as electricity, and partly on apreference for market based as opposed to physical eco-nomic controls. These physical controls were popular inother European countries at the end of the war. The socialmarket economy stresses an obligation to serve the publicgood that goes with property, and the importance of keep-ing open the possibility to acquire property for newcomers.It stresses the need to limit the power of economic actors aswell as of political actors. This ‘ordoliberal’ neoliberalismdid not involve the widespread liberalisation techniquesthat have been such a hallmark of neoliberalism in the USAand the UK since the 1980s. Today, in Germany, neoliber-als tend to be inXuenced by Anglo-Saxon ‘Chicago’ ideas,whereas ‘ordoliberalism’ is less visible, having become anintegral part of the German institutional furniture.

However, as Brenner and Theodore (2002) havedescribed, later outcomes are driven by ‘path development’based on earlier institutional practices. In this case the laterdevelopment of renewable energy support policy designswas inXuenced by the earlier ordoliberal emphasis on con-trol of monopoly practices. We now move on to discusssome theory and practice of policies relating to renewableenergy development.

4. Renewable energy support systems

It was during the 1980s that signiWcant programmesemerged in support of the commercial deployment ofrenewable energy sources such as wind power, small hydroschemes, solar power and biofuels. The so-called Califor-nian ‘wind-rush’ in the early 1980s was operated throughthe federal Public Utilities and Regulatory Policies Act of1978 – which required utilities to buy power from smallgenerators at rates up to their own ‘avoided costs’ (van Est,1999) – and through tax legislation which allowed taxrebates for investments made in renewable energy, in prac-tice mainly wind power. However, it was the Danes thatsupplied much of the wind power technology to California,and it was in Denmark that much of the wind technologicaldevelopment occurred in the 1980s. Danish support forwind power was operated through means of productionsubsidies, that is payments for each kWh of wind-electricityproduced, and was used most eVectively not by high-techWrms concentrating on large turbines but by wind energyenthusiasts and small entrepreneurs. Also, most onshorewind power capacity is owned by local actors, chieXy co-operatives and farmers. (Garud and Karnoe, 1998; Ander-sen, 1998; Lund, 2000).

The production subsidies that were paid to wind poweroperators per kWh were related to the price for domesticelectricity. This Wxed price system for rewarding renewableenergy generators became known as a ‘Renewable EnergyFeed-in TariV’ or REFIT. By 2002, nearly 20% of electricityconsumed in Denmark wind power was being generated bywind power built under this regime.

From the late 1980s (Germany) and the beginning of the1990s (Spain), extensive programmes for wind power devel-opment arose also in other countries. These were alsofunded by a ‘REFIT’ system. REFIT systems have advan-tages in that they are simple and permit growth in volume ifa suYciently high Wxed tariV is set and investor – and equip-ment producer – conWdence is secured, goals that were suc-cessfully achieved. REFIT systems also have an advantagein that diVerent Wxed tariVs can be set for diVerent renew-able energy technologies according to the stage of theirdevelopment. The largest capacity of wind power, at thetime of writing, in any country is to be found in Germany,where there were some 18,000 MW deployed at the end of2005. Spain had about 10,000 MW of installed capacity andaround 10% of electricity supplied by wind power at thattime.

Other countries were experimenting with competitive or‘market based’ renewable energy systems. ‘Market-based’ isused by the advocates of such systems to connote a suppos-edly greater role for competition. But as the EuropeanCommission put it in 2005, the argument frequentlyadvanced that TGC (tradable green certiWcate) systems aremore “market-oriented” than feed in tariVs is not correct.‘Instead, both instruments are equally market-based in thatthe regulatory body sets either the price or the quantity andleaves the determination of the other to the market’ (Euro-pean Commission, 2005b, p. 54). The countries that used, orat least planned to use, such systems include Denmark after2001 (there this system was cancelled before actual imple-mentation), the UK, The Netherlands (which abandonedtheir green electricity trading scheme in favour of aREFIT), Italy, Sweden, Poland, plus the US and Australia.‘Market based’ systems have diVerent variations, but theyhave a common feature – as we discussed earlier, theiradvocates claim that due to more intense competition theycan reduce the costs of achieving targets for renewableenergy development compared to REFIT systems (Madl-ener and Fouquet, 1999; Morthorst, 2000; Eurelectric,2004). The European Commission pushed such instrumentsvery strongly in the late 1990s, though the results achievedso far do not support the above claim (Lauber and Toke,2005; European Commission, 2005a and European Com-mission, 2005b).

‘Market based’ schemes set a percentage target of renew-able electricity in total supply and leave it to the market toachieve the optimum, cost-eVective, means of achieving thistarget. In this way they conform to McCarthy’s (2006, p. 99)description of elements of neoliberal governance. Electricitysuppliers are penalised if they do not achieve their targetsfor supplying renewable energy. Renewable Electricity Cer-tiWcates (RECs) are issued to generators which can be soldto suppliers who, in this fashion, can meet their renewableenergy targets. In practice, the so-called market basedschemes tend to have non-market aspects and, of course,they need to have a comprehensive regulatory framework or‘metaregulation’ (Peck and Tickell, 2002). To that extent,they are less distinct from ‘feed-in tariV’ systems than would

D. Toke, V. Lauber / Geoforum 38 (2007) 677–687 681

sometimes appear. Additional costs of renewable electricityare borne by the consumer in both cases.

The development of green electricity certiWcate systemshas been described as being related to emissions tradingregimes whereby the certiWcates can be traded on marketsas a commodity (Philibert and Reinaud, 2004; Bertoldiet al., 2005). However, there are clear diVerences betweenthese schemes in that the green certiWcates are not rights assuch, but attest to the generation of one unit of renewableenergy, which in turn displaces the carbon equivalent of themarginal unit of non-renewable electricity generation. It ishoped that the prices paid for renewable energy will bereduced through competitive trading in the green electricitycertiWcate markets, due to pressure to exploit the cheapestpotential Wrst and in the most economical fashion.

Neoliberal market designs have, as discussed earlierthrough McCarthy and Prudham (2004, p. 279), been putforward as a response to pressures for environmental policymeasures, thus reinforcing neoliberal hegemony whilstallowing neoliberalism to assimilate environmental objec-tives. This has happened in the case of renewable energy.For example, when in the mid-1990s electricity liberalisa-tion was introduced by a Republican government in Cali-fornia, the small renewable energy sector was threatened bybankruptcy. In order to prevent that, the California WindEnergy Association proposed the introduction of a quotaand a Renewable Energy CertiWcate system although, at thetime, the new Republican government rejected such a solu-tion (van Est, 1999, p. 292).

The development of both emissions trading systems andmarket based renewable energy schemes has taken placemost rapidly in the USA and the UK, the countries whichwere among the more aggressive in implementing neolib-eral strategies (Brenner and Theodore, 2002). Although theEU has implemented a carbon dioxide Emissions TradingSystem, Damro and Mendez (2003) argue that it was onlyactually implemented as a result of pressure from the USfor a market-based emissions system during the negotia-tions on the Kyoto Protocol.

Emissions trading was implemented in the USA’s 1990Clean Air Act in an eVort to control emissions that areassociated with acid rain. Some evaluations have seen thisas a success (Ellerman et al., 1997), whilst others come to adiVerent conclusion. In Southern California previously suc-cessful command-and-control regulation for reducing emis-sions was replaced by emissions trading in 1993. Thereafteremissions reductions ‘slowed to a crawl’ and technologicalinnovation were stunted (Moore, 2004; see also Driesen,2003 and Lohmann et al., 2005).

Some neoliberals today still reject all special mechanismsto promote renewable energy except an emission tradingsystem, arguing that this is the most ‘market-based’ solu-tion of all. This is the logic of the Kyoto Protocol. Asapplied to electricity, the cheapest ways of reducing carbonemissions would be implemented Wrst; most likely by mea-sures that will be proWtable in the short term. Measures thatpromise proWtability – even high proWtability – only in the

long run are not likely to beneWt similarly. Thus improvedfossil fuel generation appears as more attractive thanrenewable energy installations which are very capital-inten-sive and need most of this capital upfront. This situationwill persist until the price of fossil fuels is durably highenough to overcome that problem. On the whole, this sys-tem will most likely make for slow progress on emissionreductions and inhibit the development of new technologiesas happened in the case of California’s clean air policy(Moore, 2004, p. 292). In November 2005, the US Depart-ment of Energy predicted that the use of renewable energieswould decline in gross terms under the Kyoto Protocol,compared with a penetration rate without such an agree-ment (Refocus Weekly, 2005). A survey of stakeholders inthe European Emissions Trading System conducted for theEU by McKinsey showed that only 19% expect that the sys-tem has a strong impact – and 37% a medium impact – ondecisions to develop innovative technologies in the powergeneration sector (European Commission, 2005c, p. 7).

5. United Kingdom: the development of the Renewables Obligation

The UK’s electricity system was state-owned until 1990,when it was privatised. This was one of several industriesprivatised by Mrs. Thatcher’s neoliberal Conservative gov-ernment. The earliest phase of Thatcherism was character-ised by only limited privatisation and liberalisation. Then,industries such as gas and telecommunications were sold oVas virtual private monopolies. However, by the time elec-tricity privatisation took place the Government wanted toensure some level of competition, and this later era involveda programme of aggressive liberalisation as well as privati-sation. Indeed the electricity market was liberalised at thesame time that it was privatised, even if the level of compe-tition eventually achieved was rather limited with only sixmajor companies dominating the retail sales market today.

The inception of the renewable energy programme was aside-eVect of the attempt, in the privatisation programme,to create a nuclear levy, soon rebaptised ‘non-fossil fuelobligation’, to compensate the privatised generating com-panies for maintaining a quota of (deWcit-prone) nuclearpower (Helm, 2003). The government responded to calls forrenewable energy to beneWt from this incentive. Thisinvolved awarding contracts to supply electricity from vari-ous renewable technologies according to a competitive bid-ding system; awards went to the lowest bidder. This led todramatically falling prices of bids, at least on paper, in thevarious bidding rounds. Unfortunately only a relativelysmall proportion of the total contracts that were issuedactually resulted in operational schemes. The systemseemed to encourage prospective developers to make specu-lative bids that often proved to be uneconomic to put intopractice (Mitchell, 2000; Dinica, 2003).

Government ministers made it clear to their civil ser-vants that any scheme promoting renewable energy had toinvolve a ‘maximum of competition’, and that REFIT

682 D. Toke, V. Lauber / Geoforum 38 (2007) 677–687

systems were ruled out (interview with senior civil servantat the UK Department of Trade and Industry 23/11/1999).The renewable energy programme was reviewed by theincoming Labour Government in 1997, but it also adopteda competitive, albeit diVerent, system.

As has been discussed earlier, in the late 1980s and early1990s there were attempts to begin more ambitious ‘mar-ket-based’ renewable energy schemes. These ideas weretaken up by the British Government when they designedwhat came to be known as the ‘Renewables Obligation’(RO). Support for a market-based scheme was widespreadamong the developers themselves. It was thought that thiswould be a more cost-eVective solution for the consumercompared to a REFIT system (interview with MartinAlder, Chair of Renewables Committee of Association ofElectricity Producers, 7/07/06; Madlener and Fouquet,1999). The RO is intended, primarily, to achieve ambitioustargets for renewable energy deployment at a low cost andwith available technologies, rather than promote the devel-opment of technologies such as wave power which require aWrm commitment of subsidies for a longer time period.

The RO means that electricity suppliers are set targets tosupply electricity from renewable energy which increaseeach year. The targets rise, from 3% in 2002/2003, to 10% ofelectricity supply by 2010 and 15% by 2015. Renewableenergy operators receive ‘renewable obligation certiWcates’(ROCs), another name for renewable electricity certiWcates,which will be bought by suppliers, either directly from theoperators or through market trading in ROCs. If the elec-tricity suppliers do not have suYcient ROCs to meet theirtargets, then they must pay a penalty for each unit ofrenewable electricity that they fail to supply in pursuit oftheir renewables target. The penalty was set at £30 (2002prices) per MWh, uprated in line with inXation.

An innovatory aspect of the British scheme is that whensuppliers fail to meet their targets and have to pay penal-ties, these penalties are ‘recycled’ back to the holders ofROCs. Thus, a shortfall of renewable energy will increasethe value of the ROCs, and, hence, the price paid for sup-plying the renewable energy. The amount of renewableenergy being generated has, at least until 2006, only beenenough to meet around two-thirds of the target, thus putt-ing up the market price of ROCs (Ofgem Renewables Sta-tistics, 2005). The large bulk of the wind power that hasbeen deployed in the UK is owned by one or the other ofthe six electricity supply companies that dominate the UKelectricity system and who also have an interest in keepingROC prices up by keeping fulWlment down (Toke, 2005).This may be held as an argument that ‘market based’encourage control of renewable generation by the electric-ity corporations, especially in the case of an oligopoly.

In practice, the RO has been widely criticised for beingtoo costly. Key problems with the RO include the fact thatthe future price of ROCs and also the future price of elec-tricity are uncertain. This means that investors appear to betaking a greater risk compared to a REFIT style system.Hence, investors have expected, and received, large ‘risk

premia’ to compensate for the increased risk under the RO.This pushes up the cost of renewable energy projects com-pared to a REFIT system where prices paid to renewablegenerators are Wxed in advance for 15 or 20 years (Butlerand NeuhoV, 2004; Toke, 2005; Mitchell et al., 2006).

The UK’s Parliamentary Expenditure watchdog wascritical of the expense of the programme (House of Com-mons Public Accounts Committee, 2005). Then, during theGovernment’s Energy Review in 2006, the Carbon Trust (aGovernment body) published a report calling for the RO tobe reformed. It said

The overall cost of installed renewable energy to con-sumers will be higher than necessary, given the cur-rent technology cost because the RO is ineYcient in anumber of waysƒ. Feed-in tariVs have been provento be successful elsewhere (Spain and Germany) ingenerating signiWcant deployment of low-cost renew-able energy (L.E.K. Consulting, 2006, p. 3 and 4).

The British Conservative Party has also criticised the ROfor being costly and called for feed-in tariVs to be imple-mented for small decentralised energy sources (Conserva-tive Party, 2006). Indeed, the Government has responded tocriticisms of the Renewables Obligation by proposingreforms. Its 2006 Energy Review proposes to ‘band’ theRO so as to divide the overall RO target into sections allo-cated for diVerent types of renewable energy technology(Department of Trade and Industry, 2006a; Department ofTrade and Industry, 2006b). This would have the eVect ofbringing the RO closer to the REFIT concept in that diVer-ent price levels would be established for diVerent renewabletechnologies.

However, it would also make an already highly regu-lated and artiWcially constructed market in renewable obli-gations certiWcates (ROCs) much more complex. Forexample, the state already speciWes what does and whatdoes not qualify for a ROC, it speciWes what proportion ofelectricity supply must be provided from renewable energyand it also speciWes the penalty that suppliers must pay foreach quantity that is missing towards a speciWc target. Ithas authorised various quasi-state agencies, such as theNon-Fossil Purchasing Agency, and the OYce of Gas andElectricity Management to monitor and regulate the sys-tem. The reforms that have been suggested (Department ofTrade and Industry, 2006b) would add further complica-tions, eVectively giving the Government greater ability toinXuence the prices paid for diVerent types of renewableelectricity.

We can see here how the four elements of neoliberal gov-ernance enumerated by McCarthy (2006) and which we dis-cussed earlier are exhibited by the British RenewablesObligation (RO). First, it has an emphasis on a market inrenewable obligation certiWcates. Second, the RO’s imple-mentation is left to a privatised, allegedly competitive, elec-tricity industry. Third, in theory, the results are not dictatedby the state, but by the market. Fourth, the British electric-ity industry’s ‘Balancing and Settlement Code’ is itself

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subject to discussion by committees of stakeholders drawnfrom the electricity industry.

However, there are also contradictions of the sort dis-cussed by Peck and Tickell (2002) (to which we have earlieralluded). They speak of the ‘metaregulation’ that is inherentin neoliberal policy designs. The RO mechanism is boundedby an array of regulations which deWne and regulate a con-structed market in renewable obligation certiWcates. Thelatest government proposals threaten to increase the com-plexity of this ‘metaregulation’. Ironically, the revised ROwill make it visibly rather more complex than the allegedly(according to neoliberal folklore) ‘command and control’REFIT mechanism. Let us move on to discuss the GermanREFIT system.

6. Germany: The development of REFIT

The German utility sector has long been dominated bythe powerful large utilities, most of them privately owned.Even right after World War 2 it successfully resisted AlliedeVorts to introduce greater competition. This did notchange much in the decades which followed. The sector wasorganised on the principle of territorial monopolies until1998.

Initial reforms to allow space for independent renewableenergy projects, in the late 1970s and early 1980s, had littleeVect, except for a few local companies, since the utilitiesinterpreted legal revisions very narrowly. However, the1980s were a time of very high environmental concern inGermany. After the strong anti-nuclear movement of the1970s, the chief themes were now acid rain and forest die-back, and by the middle of the decade also climate change.After Chernobyl, public opinion shifted overwhelminglyagainst nuclear. A special parliamentary committee(Enquetekommission) was set up then to study the impactof industrial society—and in particular of energy consump-tion—on the earth’s atmosphere, and to come up with rec-ommendations for action. One of these recommendationswas the enactment of a feed-in law for renewable electricity.

First proposals for a feed-in law came from conservativebackbenchers in the late 1980s and were resisted by the con-servative-liberal leadership in government and parliament.The Wrst proponents were paciWed with a modest marketcreation programme for wind and solar. Then a secondproposal was put forward, again by a conservative MP. Itgathered much support from the renewable energy sector,many of whose members were involved with small hydro orhad an interest in wind power and were politically conser-vative. This led to conservative-green cooperation in parlia-ment on the new proposal. Eventually it became clear to theconservative leadership that the momentum could not bestopped any longer. Still, the ministry of economic aVairs(patron of the utilities) gave the utilities the option to avoidlegislation by negotiating a voluntary agreement on a feed-in tariV with renewable electricity generators (Kords, 1996).This ministry was headed by a member of the Liberal Party(FDP). In 1990, utilities, though mostly privately owned,

still enjoyed the status of territorial monopolies for retailsales; they also owned (and still own) the high-voltage grid.In that particular year – the year of German uniWcation –West German utilities were engaged in the process ofabsorbing their counterparts from East Germany. In addi-tion, they probably did not think that the renewable elec-tricity law would have much impact and rejected theministry’s oVer. As a result, the feed-in tariV was passedinto law. Speakers for the majority parties (conservativeCDU/CSU and liberal FDP) pointed out that the law wasdesigned to compensate green generators for the lack ofinternalisation of external costs in fossil fuel plants andtherefore did not introduce a subsidy (Ganseforth, 1996;Bundestag, 1990). Many would still deWne the payments assubsidies, but the relevant point here is that the internalisa-tion of external costs plays an important role in ordo-lib-eral theory. Eventually the law was passed withoutopposition. The representative of the economic aVairs min-istry expressed his belief that such a law – even if justiWed inthis particular case – should remain an exception in a mar-ket economy. But then the very same ministry had long andgenerously subsidised coal and nuclear, while at the sametime arguing that renewable energy must ‘make it in themarket’ (Jacobsson and Lauber, 2006).

Compared to the British RO, the REFIT system is muchless in keeping with McCarthy’s four elements of neoliberalgovernance which we discussed earlier (McCarthy, 2006, p.99), especially in view of REFIT’s so-called (by its critics)‘command and control’ setting of prices paid to renewablegenerators. However, REFIT is still an institution thatfosters competition for three reasons. First because windgenerator (or other renewable energy equipment) manufac-turers have to compete in selling their products to thedevelopers. Second, competition among developers willtend to hold down costs. Third, the system fosters competi-tion from newcomers in a sector in which incumbents – theutilities – had been resisting ecological innovation and envi-ronmental priorities. Besides price setting, the feed-in lawalso contains a provision that utilities have to purchase allrenewable electricity produced on their territory. On thewhole, the system involves very little bureaucracy, quiteunlike the certiWcate-based schemes.

Soon a variety of grass-roots based activists began toorganise wind power schemes. This was done by makingpublic share oVers and borrowing money from banks topay for the wind power schemes. Most wind power todayresults from the eVorts of grass roots activists of one formor another. The REFIT, at Wrst in combination with the100 MW wind programme (Jacobsson and Lauber, 2006),made such practices commercially viable.

The rate to be paid to wind power operators for eachkWh of electricity produced was set, in the 1990 law inwhich it was established, at 90% of the tariV paid by domes-tic consumers of electricity. This was changed in 2000, andagain under a 2004 law which Wxed rates for wind power inabsolute monetary terms and at a rather lower level. Thislevel of payments to wind power operators is not only

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related to the amount of windspeed at a windfarm but alsoto the year that a speciWc installation goes on stream. ThetariV rates for wind power – though nominally stable andguaranteed for 20 years since the reform in 2000 – declinefor each year’s cohort of new installations at an annual rateof 2% (Bundesgesetzblatt Jahrgang, 2004, I, 1918; Lauberand Mez, 2006).

The utilities consistently opposed the substantial deploy-ment of renewable electricity in general, and REFIT inparticular. When the new law proved successful beyondexpectations, they challenged it both in the courts and inthe political arena, on the national and the European level,though without success. This was in the context of stagnat-ing demand where new entrants to the electricity market,under the priority dispatch rule of the feed-in law, werebound to take trade away from existing power plant.

The utilities attacked REFIT for a variety of reasons,including ‘excessive compensation’, illegal state aid and vio-lation of internal market rules. Indeed a leading Germanelectric utility launched what proved to be an ultimatelyunsuccessful challenge to the REFIT. This challenge, madeunder EU competition law, failed in 2001 when the Euro-pean Court held that the law did not involve state aid, argu-ing that the government at no stage had control over thefunds that paid for the extra cost of renewable generationand which Xowed directly from the consumers to the utili-ties, which in turn passed them on to the generators (Euro-pean Court, 2001). The utilities also criticised the schemefor supporting intermittent and thus unreliable energysources, for causing extra costs to the consumer and fordepriving their own power stations of income from the saleof electricity.

The German utilities have articulated these points in col-laboration with the European electricity trade association,Eurelectric. They have called for a European-wide ‘marketbased’ renewable energy system as a cost-eVective alterna-tive to the REFIT (Eurelectric, 2004). At various times theyalso argued in favour of purely voluntary schemes (i.e.green customers paying for the extra cost of renewable elec-tricity). In 2005, they hoped to achieve this goal with thehelp of a conservative-liberal coalition, but failed oncemore.

In the mid-1990s, electricity liberalisation made its wayto Germany, in the context of the preparation of EU elec-tricity liberalisation directive 96/92 EC (Eising and Jabko,2001). After some initial reluctance, the governmentaccepted the argument in favour of greater competitivenessthrough lower electricity prices as the goal of liberalisation.However, liberalisation remained incomplete due to oppo-sition (by social democrats, the Greens and some Ländergovernments) in the second chamber of parliament. Whenthe electricity directive was Wnally transposed into Germanlaw, the government planned to use this occasion tostrongly reduce feed-in rates according to advice from DGCompetition. However, it could not even persuade all of itsown MPs, so the eVort failed, although only narrowly(Jacobsson and Lauber, 2006).

Electricity liberalisation was at Wrst opposed by bothsocial democrats and Greens. However, upon coming topower in 1998 they came to view it as means of combatingthe power of the electricity utilities (e.g. by the creation ofan electricity regulator and by weakening the oligopoly ofthe large utilities). Both parties – along with all renewableenergy trade groups such as German wind power associa-tion, BWE – have continued to give strong support to thecontinuation of the REFIT. In 2005, the conservatives –who earlier on had criticised REFIT – in the coalitionagreement with the social democrats agreed not to revisethe REFIT law of 2004 before 2007 (Lauber and Mez,2006).

Trade associations representing renewable energy gener-ators express a strong preference in support of the REFITsystem, regardless of the state of electricity market liberali-sation. However, they criticise the limitations on the abilityof renewable operators to sell their power to more than oneelectricity company. Under the current system, the fourlargest utilities own the high-voltage grid and regulate bothprices and access; they divide up German territory amongthemselves and represent de facto monopolies which havebeen capable of eVectively squeezing out new supply com-panies that emerged right after liberalisation in the late1990s. The immediate eVect of liberalisation has thus been awave of mergers – domestic and foreign – due to whichGerman utilities are now among the world’s largest.

The eVective monopoly of the grid has become a matterof legal controversy since the introduction of a regulator in2005 (a result of the EU liberalisation directive 2003/54/EC). Some wind power groups have actually started tobuild their own power lines. On the whole, the REFIT hasbeen a defence of small and medium sized commercialenterprises against the interests of oligopolistic electricitysuppliers, who for all practical purposes were not allowedto beneWt from feed-in rates until 2000 (when the red–greengovernment wanted to involve them in oVshore winddeployment). The German experience Wts well with theargument that REFIT systems favour local ownership ofrenewable energy while ‘market based’ systems favour con-trol and ownership of renewable energy by the main elec-tricity supply corporations (Hvelplund, 2005).

7. Comparing outcomes

In the 1990s, the European Commission gave a veryclear preference to tradable green certiWcate (TGC) systemson the expectation that they would be more cost-eVectiveand ensure more rapid development of renewable energy aswell as accelerate innovation in this area. It also expectedless political interference by sectoral groups in the designand management of such a scheme (European Commission,1999). Since then at least DG Energy revised its position inthe light of experience (European Commission, 2005a,b).

The Commission in 2005 concluded that the UK’sRenewables Obligation and a similar system in Italy andBelgium produced the highest prices per kWh of wind

D. Toke, V. Lauber / Geoforum 38 (2007) 677–687 685

power in Europe (European Commission, 2005b, p. 33).The gap between generation cost and compensation is high-est in the UK (European Commission, 2005b, p. 32) andleads to expected proWt ratios (annuities) there which areabout Wve times as high as in Germany (European Com-mission, 2005b, p. 13). The Commission adds that the wide-spread claim that the high level of feed-in tariVs is the maindriver for investment in wind energy in Germany or Spainis simply incorrect. In its view, the higher prices of the TGCsystems is due to the higher risk involved in such schemes(Xuctuating certiWcate prices, uncertain termination date ofthe system), as pointed out by Toke (Toke, 2005 and Mitch-ell et al., 2006). This is aggravated by the higher administra-tive cost and the immaturity of the TGC markets(European Commission, 2005b, p. 14). One should add thatrising market prices for electricity are also reXected in TGCsystems though not e.g. in the German REFIT (Lauber andToke, 2005). Finally, ‘a more complex TGC system tends tofavour market incumbents over new market entrants suchas independent power producers’ (European Commission,2005b, p. 21). This obviously reduces competition, one ofthe supposed chief beneWts of such schemes. The UK expe-rience also shows that the oligopoly of suppliers is able torestrict target fulWlment by about two-thirds (Toke, 2005).

TGC systems also show a lower rate of deployment. Thismay have several reasons; countries with TGC schemeshave tended to start programmes later than many REFITones. The permitting system may also play an importantrole here. But the high prices reported above will do little tobuild political support for such deployment while theyfavour competing forms of energy such as nuclear.

Innovation and dynamic eYciency is another area inwhich TGC systems were supposed to be superior (Euro-pean Commission, 1999, #4.2.3). In 2005 however, theCommission concluded that feed-in tariVs were more oftenused to promote innovation in renewable energy (dynamiceYciency) than TGC schemes (European Commission,2005b, p. 16). TGC schemes are usually used to create bet-ter static eYciency (lower prices), but they missed this goalso far since they created a higher risk for investors andlong-term technologies which are not easily developedunder such schemes (European Commission, 2005b, p. 11).

The Commission also concluded that not only is a TGCsystem complex to operate, but it also presents higheradministrative cost than REFIT schemes (European Com-mission, 2005b, p. 5 and 17). There is no indication that it isany less prone to political interference. Finally, the Com-mission mentions that ‘the existence of dominant marketplayers can complicate the development of a TGC market,though a well-designed system can overcome this situation’(European Commission, 2005b, p. 17).

In this context, it may be useful to draw on US experi-ence with renewable portfolio standards, which is quite suc-cessful in Texas. In principle this is a quota/TGC scheme. Inpractice however it is supplemented by a production taxcredit granted to generators of renewable electricity foreach kWh and which greatly resembles a REFIT except

that it is paid out of the federal budget. Also, the Texasscheme so far mobilised only a tiny portion of the windpotential existing there (Langniss and Wiser, 2003; Lauber,2005; Toke, 2005).

8. Conclusion

Those neoliberals who accept the need to increase theshare of renewables in the energy supply would like to relyon neoliberal instruments such as the British RenewableObligation and other tradable green certiWcate (TGC) sys-tems. This is even though – and in the case of utility indus-try incumbents perhaps because – these perform morepoorly than REFITs such as the one in Germany, which aredesigned to create opportunities for smaller market playersto compete against monopolistic and oligopolistic compa-nies.

The emergence of REFIT schemes has to be seen in thecontext of ‘path development’ processes, in this case inXu-enced by the social market economy and the inXuence ofordoliberalism on its emergence. Although the REFIT sys-tem is not neoliberal, it developed in an institutional settingthat was shaped by ordoliberal preferences and its concernfor the common good. Thus it emphasises competition,opportunities for smaller market players against monopo-listic practices, and the internalisation of external costs.

There is a plausible argument that the Anglo-Saxon neo-liberals do not seem to be able to translate their stated ideo-logical goals of cost reduction through neoliberal marketgovernance into practice, at least in the case of renewableenergy support systems, and, according to many arguments,also in emissions trading schemes in general. Long terminnovation in clean energy technologies is neglected by suchinstruments when compared to other policy designs, suchas REFIT systems.

On the whole then, neoliberal solutions tend to stunt thedeployment of renewable energy in those geographic areasin which they are adopted as public policy, when consider-ing the potential that is oVered by more eVective andeYcient policies. This almost happened in the EuropeanCommunity in 1999 and could still happen there in thefuture. It is already happening in many developing coun-tries, for which the World Bank insists on reductions ofinstitutional barriers for renewable energy, inter alia, byintroducing ‘renewable portfolio standards’ (i.e. TGC/quota systems) ‘and similar market based mechanisms thatthe World Bank Group already actively supports’ (WorldBank, 2004, p. 10). Any other response from the inventorsof the Washington Consensus would indeed have been sur-prising.

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