Employment Effects of Regional Climate Policy: The Case of Renewable Energy Promotion by Feed-In Tariffs

This paper examines the local impacts of renewable energy carrier promotion by the German feed-in tariffs scheme "Erneuerbare-Energien-Gesetz" for the German State of Baden-Wuerttemberg by using an input-output approach. The local impacts are of particular interest as in Baden-Wuerttemberg the manufacturing industries are highly important compared to the rest of Germany. We analyze the effects of the policy actions on the production as well as the employment of several sectors. We construct a regional input-output table of Baden- Wuerttemberg and introduce the construction and the operation of installations for seven renewable energy types in order to examine different paths to achieve the state government’s targets.

We consider two scenarios with different sources funding the investments in the construction and operation of renewable energy installations. In the first scenario, all the necessary investments are funded completely by internal sources. Hence, the scenario is driven by the assumption that these investments either crowd out investments in other industries of the regional economy or the investments are paid by the government, i.e. by taxes which are borne by all other industries and by the households. Therefore, the final demand of all other sectors decreases. In this scenario, we have a slightly positive total turnover effect, although in many sectors the turnover effect is negative. In addition, the total employment effect is negative since the more labour-intensive industries are affected more heavily from the policy than the less labour-intensive industries. The second scenario considers the case of a partly external funding by taking into account that the installations may be demanded from "abroad", i.e. the rest of Germany and the rest of the world. Therefore, investments in other industries are not completely crowded out in this scenario. We find positive production and employment effects also for most industries besides the energy sector.

Our findings suggest that policy actions promoting renewable energy types do not necessarily create new jobs and additional turnover for the whole economy. They rather induce a structural change of the economy since other investments might be crowded out by investments in installations of renewable energy and the demand in other sectors might decrease. However, if the producers of the installations are able to export parts of their products to the rest of Germany and the rest of the world, these crowding out effects can be attenuated and turnover and employment effects might be positive in total.

Heindl, Peter and Sebastian Voigt (2012), Employment Effects of Regional Climate Policy: The Case of Renewable Energy Promotion by Feed-In Tariffs, ZEW Discussion Paper No. 12-066, Mannheim.