waves by 2015. The US is vehemently opposed to those targets, judging them
unrealistic, and so are petroleum-producing countries” (UN, 2002).
The aim of this paper is to investigate how different ways of implementing of
the Kyoto-agreement influence the relative competitiveness of windmills, and
how this gives the EU incentives to shape policy in order to promote renewable
energy sources.
This paper also adds to the debate about the feasibility of unilateral actions.
Hoel (1991) mentions that if ”setting a good example” is the main reason for
unilateral actions, then such actions will at best reduce the overall emission
level (but by less than the unilateral reduction itself), but at worst, actually in-
crease total emissions. Hoel (1991, p. 69) concludes that: ”it might not be par-
ticularly sensible for an environmental group in a country to try to force its
government to unilaterally reduce the countries emissions”. Our paper presents
a case where the presence of first mover advantages makes Hoel’s finding less
unequivocal. If unilateral actions can promote new technologies, and for exam-
ple, verify that costs of reducing emissions are smaller than expected, there is
potential for unilateral actions.1
Whether or not any particular first mover knowledge will also turn out to be
successful in terms of export earnings hinges on numerous factors. In particular,
two factors this paper focuses on are the evolution of the production costs and
changes in the relative prices due to implementation of emissions reduction ob-
ligations. The evolution of the production costs depends on the shape of the
learning curve for the relevant technology. The learning curve describes how
unit costs of production change as the experience in using the technology in-
creases. Ex ante, the exact shape of such a curve is uncertain, and a very inter-
esting situation, from an analytical point of view, appears when the learning-by-
doing cost reduction is not enough to make the technology competitive, unless
1 This issue is analysed in more details in Brandt (2002).