Pros and Cons of Subsidies Tarrifs and Trade Barriers in Holland S Wind Energy Sector

Subsidies in Wind Energy in Holland

As it appears, Holland is not the only nation to give an economic boost by supporting a promising new source of energy. In the Holland history, energy subsidies have been crucial for the overall economic development. This essay looks at the positive aspects of these intermittent subsidies. It also details how the same subsidies are weakening the renewable energy industry by focusing on how the Production Tax Credit (PTC) is affecting the industry. Nevertheless, the essay will establish that despite the precise information about the subsidies in wind energy, the provision of long-term and predictable subsidies is important in ensuring a sustainable shift to a renewable energy source.

Positive Aspects

Holland's subsidies in wind energy, in the form of PTC, are a government incentive that serves financial support for the development of renewable energy facilities. Firms that produce electricity from geothermal, wind and "closed-loop" bioenergy qualify for a government PTC that grants a 2% per kWh incentive for the initial ten years of operating a renewable energy facility (Piscitello, & Bogach, 1998).

The incentive was because of the industry recording a strong growth while the PTC was enacted, leading to the PTC extension. Then, lapses in the PTC ignited a drastic slowdown in the execution of intended wing projects, leading to layoffs at wind facilities and production companies. With the restoration of PTC, Holland's wind energy sector has regained its footing, thus experiencing strong growth, thanks to the credit subsidy (Zhongguo & Zhongguo, 2010).

Temporary extensions of the PTC are inadequate in sustaining a lasting growth of the renewable energy. The permitting and planning procedure for new wind energy companies could take up to two or more years to complete. Therefore, renewable energy companies that depend on PTC to enhance their cost-effectiveness could hesitate to launch a new project because of the uncertainty that the subsidy will still be available when the venture is finished.

Negative Aspects

Holland's subsidies in wind energy are working against global efforts to curb the use of fossil fuels to control global warming. In fact, the Organization for Economic Cooperation and Development (OECD) states that subsidies that support fossil fuels, especially oil and coal, pose greater threats to the environment than subsidies to renewable energy. Wind energy subsidies contribute to peculiar safety and environmental issues. In most cases, these issues are related to the risk of high degree environmental damage like global climate change (Strachan, Lal, & Toke, 2009).

Subsidies in wind energy have led to an increase in fossil fuel consumption. It is argued that roughly 95% of the recent surges in oil demand accrue from regions where the oil price is subjected to subsidies (Zhongguo & Zhongguo, 2010). International Energy Agency (IEA) estimates that eliminating subsidies in wind energy would curb global carbon dioxide emissions by 2% in 2020. The world energy outlook reveals that removing wind energy subsidies by 2020 would reduce global energy demand by 4%. By abolishing these subsidies, Holland will reduce the demand for energy by roughly 5% as per 2035 (Piscitello & Bogach, 2008). While many have conquered with the idea of eliminating subsidies in wind energy, nothing has been achieved. As such, the government of Holland has suggested ending wind energy subsidies as they are encouraging wasteful energy consumption Piscitello, & Bogach, 1998).

A study launched by the OECD illustrate that eliminating wind energy subsidies in Holland would cut world Greenhouse Gas (GHG) emissions roughly by 10% as per 2050. The abolition of these subsidies would amount to at least 7% of the efforts required to maintain temperature increases to less than 2°C (Piscitello, & Bogach, 1998). However, the wind energy sector claims that scraping off these subsidies would lead to a decline in domestic production, lose of jobs and an increase in gas prices.

Tariffs

While Holland uses various policy tools to promote the use of wind energy, the current government subsidies pose a direct conflict with global trade policy. Particularly, Holland uses direct subsidies known as feed-in tariffs, grants and rebates (Clayton, 1992). Even their traditional subsidies could have an element of industrial policy, as in this case, a feed-in-tariff meant to promote local industry growth. Moreover, Holland frequently uses local content requirements (LCR), aimed at encouraging local over imported renewable energy technologies. Sometimes, they use export credit assistance to promote local sectors abroad. The commonly used feed-in-tariff offers businesses, public sector organizations, and households that deploy approved wind energy technologies with guaranteed payments for the electricity they produce and extra payments to any electricity they export to the grid. It is responsible for the deployment of micro-generation technologies. It has particularly driven rapid expansions in Holland's wind energy market. In fact, the scheme has been praised for mobilizing investment in rooftop wind projects that do not affect agricultural land and hold a minimal visual effect (Strachan, Lal, & Toke, 2009).