consumers abroad pay the full price for the energy.2 This implies that whether
or not the relevant technology can be exported to other countries depends on
these countries’ emission reduction plans. In this case, the country with the first
mover knowledge has a strong incentive to convince other countries that they
also have an obligation to implement policies to reduce CO2 emissions. All this
will be analysed by use of switch points, which describe how changes in the
relative prices of different energy supply sources will change the composition
of a country’s energy supply sector.
By implementing the Kyoto-target, a country inevitably provides more favour-
able conditions for wind energy. Our paper shows that whether or not this
makes wind energy competitive to conventional energy production depends on
type of instrument used to make the relevant emissions reductions. If a suffi-
cient number of countries agree on a common tradable permit market, and this
market is well functioning, then it is not likely that changes in relative prices
are sufficient to make wind-based energy competitive to conventional energy
production. This means that the EU could promote their industry by not sup-
porting unrestricted trade in permits, under the presumption that lack of full ac-
cess to trade will not influence the countries’ willingness to accept the original
levels of reductions implied by the Kyoto-agreement.
The paper is organized as follows. Section 2 gives the theoretical background in
terms of basic incentives (2.1), first mover advantages and switch points (2.2)
and energy price estimates (2.3). Section 3 then turns to the historical reasons
why the EU has been more energy restrictive than the US. Section 4 analyses
the wind energy market, and the prospects of future market developments are
discussed in section 5. Section 6 concludes the paper.
2 That is, the price reflects all costs of production, both the private and the social costs of produc-
tion.