**7. The role that renewables play and what we want them to play**

It is worth discussing, in more detail, the observed effect of renewables on economic growth. The main motivations for the use of RE are diverse, as indicated above. One of the most widely claimed is that of environmental concerns. Renewables allow traditional production technologies to be replaced with other cleaner technologies, with lower emissions of greenhouse gases, in line with what is suggested by De Fillipi & Scarano (2010). The question that many countries, such as the United States of America, have raised is that this substitution severely limits the capacity for growth. This is the ultimate cause for the nonratification of important international treaties like the Kyoto Protocol.

Moreover, it is far from unequivocally proven that more intensive use of renewables contributes decisively to the reduction of CO2 emissions, in line with what was pointed out, for example, by Apergis *et al*. (2010). In this chapter we tested the inclusion of CO2 emissions as an explanatory variable, but it proved not to be statistically significant.

Renewable sources should be placed within the mix of energy sources, requiring the simultaneous use of other sources, mostly fossil. The intermittency of renewables cannot be compensated by the use of nuclear energy. The offset of the lack of production from renewables implies the ability to frequently turn these other sources of support on and off, which is obviously not possible when it comes to nuclear energy. The counterbalance has to be made by fossil fuels, mainly natural gas and coal. The latter is a cheaper source of energy but at the same time is also highly polluting.

The growing use of RE has been heavily dependent on policy guidance. Most EU Members, either voluntarily or compulsorily, have established several mechanisms to support these alternative sources of energy. One of the most commonly used policies is the feed-in tariff, which consists of setting a special price that rewards energy from clean sources. This policy and all other public policies lead to government expenses. These costs are passed on by the regulators to the final consumer, both residential and firm consumers. When they are not passed on by regulators in the regulated market, then in the liberalised market, the producers transfer to consumers the extra costs they have when producing energy from

combined cycle plants, which use mainly natural gas as fuel, have been used to guarantee electricity supply within the RE development strategy. This fact has contributed to stimulating the development of this energy source. It is a cleaner source, and is considered

Although the fact that RE limit economic growth is an unexpected result, it is one that deserves deep reflection in this chapter. Policy makers should be made aware of the global impacts of policies promoting the use of renewables. At first glance, the development of renewables should have everything to make it a resoundingly successful strategy. With this strategy, it would be possible to fight global warming, reduce energy dependency (not only economic but also geo-political), create sustainable jobs and develop a whole renewables cluster. What these results suggest is that the effects of renewables are more normative than real, i.e., the results are far from what they should be. Indeed, the development of renewables has been supported in public policies that substantially burden the final price of electricity available for final consumption to economic agents. At the same time, the productive structures of the countries are still heavily dependent on fossil-based technologies, such as internal combustion engines. Their conversion towards other

It is worth discussing, in more detail, the observed effect of renewables on economic growth. The main motivations for the use of RE are diverse, as indicated above. One of the most widely claimed is that of environmental concerns. Renewables allow traditional production technologies to be replaced with other cleaner technologies, with lower emissions of greenhouse gases, in line with what is suggested by De Fillipi & Scarano (2010). The question that many countries, such as the United States of America, have raised is that this substitution severely limits the capacity for growth. This is the ultimate cause for the non-

Moreover, it is far from unequivocally proven that more intensive use of renewables contributes decisively to the reduction of CO2 emissions, in line with what was pointed out, for example, by Apergis *et al*. (2010). In this chapter we tested the inclusion of CO2

Renewable sources should be placed within the mix of energy sources, requiring the simultaneous use of other sources, mostly fossil. The intermittency of renewables cannot be compensated by the use of nuclear energy. The offset of the lack of production from renewables implies the ability to frequently turn these other sources of support on and off, which is obviously not possible when it comes to nuclear energy. The counterbalance has to be made by fossil fuels, mainly natural gas and coal. The latter is a cheaper source of energy

The growing use of RE has been heavily dependent on policy guidance. Most EU Members, either voluntarily or compulsorily, have established several mechanisms to support these alternative sources of energy. One of the most commonly used policies is the feed-in tariff, which consists of setting a special price that rewards energy from clean sources. This policy and all other public policies lead to government expenses. These costs are passed on by the regulators to the final consumer, both residential and firm consumers. When they are not passed on by regulators in the regulated market, then in the liberalised market, the producers transfer to consumers the extra costs they have when producing energy from

emissions as an explanatory variable, but it proved not to be statistically significant.

**7. The role that renewables play and what we want them to play** 

ratification of important international treaties like the Kyoto Protocol.

the transition source from fossil fuels to renewable sources.

technologies is a slow and expensive path.

but at the same time is also highly polluting.

renewable sources. This strategy of promoting RE can thus burden the economy with electricity costs that are too high and therefore hinder economic growth.

It is already clear that the overall strategy for electrification of the economy requires large volumes of financial resources, which may be diverted from other alternative projects. However, the massive investment in renewables may promote divestments, not only in the technological upgrades of other conventional sources of energy, but also in other industrial projects. In order to be able to achieve compliance with the requirements of market entry, and to keep innovating mainly through R&D, players in renewables are obliged to issue debt. Given that the available financial resources are scarce, this debt from renewables may be preventing players in other industries, with even greater multiplier effects on economic growth, from achieving fair interest rates which do not compromise the appropriate return.

In this regard, it is worth highlighting that another factor which may help explain the negative effect of renewables on economic growth is that the investment should be paid during its usable life, as good practices suggest. The reality shows that this normally does not happen. Consumers have to start to bear the cost of a wind farm or solar park almost immediately. More serious still is that the Government requires the payment for a licence allocation of power generation in advance. After that, the Government guarantees prices for the purchase of the electricity generated. Finally, the winners of the bids will capture the regulators to immediately recover these costs of entry. Overall, this has little to do with the nature of renewable technology. Instead, it is more a launch of a tax resulting from renewables diverted to electricity costs and, ultimately, on consumers and on the economy as a whole.

No less important within this discussion of the effect of renewables on economic growth is the effect brought about by renewables on the technology and production capacity already installed. In fact, greater use of renewables implies the dismantling or simply the creation of excess capacity based on conventional sources. Note that, in the past, these sources represented a major cause of the degree of development, industrialisation and prosperity of the countries. They grew mainly supported on technologies based on fossil sources of energy. The increased use of renewables can thus be causing two outcomes. On the one hand, renewables may diminish the positive effect of conventional sources on economic growth. On the other hand, renewables discourage technological upgrades of conventional sources. Nonetheless, these sources can still evolve, both as regards the level of energy efficiency (thus reducing dependency), and as regards greenhouse gas emissions.

It should be noted that the results presented in this chapter were obtained by studying evidence from 1990 to 2007. They do not allow us to unequivocally conclude that RE will not stimulate economic growth in the near future. Indeed, the studies using official statistics on energy produced from renewable sources inevitably suffer from a problem that could lead to some kind of bias in the results. The official statistics on the use of RE normally do not reveal the true contribution of these sources both to our lives and to the economy as a whole. There is a plethora of examples that illustrate this failure in the statistics. When the sun comes through the windows of our homes or businesses, effectively heating them, there are significant energy savings by avoiding the use of traditional energy sources. The statistics also do not capture the effect when the sun heats the water that we use both for bathing and industrial activities. The sunlight that enables the achievement of sporting events, entertainment and various economic activities without resorting to light bulbs is a valuable contribution of this renewable source, but it is also absent from official statistics. Solar radiation allows the growth of plants, both for biomass and food, which in turn creates energy. Finally, it should not be forgotten that solar radiation allows the chemical process for the formation of fossil fuels. The natural resource water does not only provide the water supply for dams for electricity generation, with the particularity of this feature in allowing storage. In short, by not considering all these effects from renewables, the results that come from the use of official sources of statistics may not give the full picture of the effect of renewables. All the energy that results from natural and renewable sources is generally not included in the statistics, but it is an invaluable contribution to reducing the use of other sources, mainly polluting fossil sources.

In general, if taken together, renewables are likely to contribute positively to the process of economic growth. However, regarding the use of natural sources for electricity generation through direct human intervention, such as wind and photovoltaic facilities, it seems that the desired results are still a long way off. In fact, this may distort the conclusions about the contribution of renewables to economic growth. The immediate challenge will therefore be to strengthen the use of these renewable sources, in their natural state. In other words, both the organisation of society and the economy should be more consistent with the maximisation of benefits from these natural sources. Just two simple examples. First, more energy-efficient houses must be built. They should maximise the benefits of solar power for heating, while wind, rain and vegetation should contribute to cooling them. Second, both sports and musical shows should be performed during periods when natural light eliminates the need for artificial lighting, which consumes a great deal of electricity.

Overall, a country's decision to intensify the use of the RE mix is eminently political, rather than economic. In this process, there are two strongly related factors that will influence the role of renewables in the economy. The first concerns the evolution of technology converting energy emitted by renewable sources into usable energy, such as electricity. The second factor is of a political nature. The consequences for renewables will be rooted in this political process. We believe it is essential that the regulatory authorities do not excessively and quickly pass costs of RE production to the economy. Instead, they should commit players operating in this industry to assuming a significant part of the risks inherent in these energies.
