Renewable Energy Incentives across Varying Levels of Statehood

Abstract

Climate change governance includes contributing towards mitigating greenhouse gas (GHG) emissions in order to maintain a stable climate as an essential public good. This chapter explores the mitigation aspect of climate change governance by assessing market-based incentives (MBIs) that promote renewable energy. This research illustrates the central role that statehood plays in renewable energy development, specifically with regard to financing considerations, which are generally considered separately from socio-political factors. The private sector independent power producer (IPP) is often dependent on the state, to provide and maintain financial incentive over the lifetime of the project, in order to ensure a sufficient return on investment for its renewable energy projects. Conversely, the state is dependent on the IPP to deliver clean energy to the country’s electricity supply at the lowest possible cost, in order to maximise use of limited governmental resources. However, in developing countries, MBIs also need to provide investors with a return commensurate to the risk associated with a lower level of statehood, thus serving as the functional equivalent to the state’s shadow of hierarchy (Börzel and Risse, 2010).