The Political Economy of the Green Technology Sector - A study about institutions, diffusion and efficiency

This paper discusses aspects related to the green technology sector in Germany. In a first step institutional reforms enabling diffusion of green technologies are analysed. Cost arguments are also taken into account. In a second step a theoretical model developed by Tanguay et al. (2004) is modified in order to evaluate the efficiency of the institutional setting in a political economy framework. The model is able to show that command and control policies (CCPs) are accompanied by cost-inefficiencies depending on the political weight of the green technology sector. Because actual costs related to the support of green technologies are relatively low, the theoretical predictions of the model are moderated. Nevertheless, as additional money will be transferred to the green technology sector during the next decades, interest groups will gain additional political power and the problem of cost inefï¬ ciency can therefore become more relevant. The paper gives important hints whether the CCP system installed in Germany is the right instrument in order to increase the share of energy produced with green technologies from 12.5% (in 2010) up to a level of 30% (in 2020).