9. Case: Wind Energy Industry in the US and Canada: A Note on the Regulatory Environment

Question (a)

The question intends to analyze the importance of wind energy in gaining energy self-sufficiency and explain the role of government regulations in achieving this purpose.

The answer explains the drawbacks of fossil fuel energy and emphasized the advantages of wind energy.

It mentioned that although wind energy is costly as compared to fossil fuel based power. it is usually referred to as clean forms of energy since it does not produce harmful emissions and polluting agents into the atmosphere. Increasing the wind power production will allow society to reach a higher level of welfare. Since wind energy is considered the most promising form of green energy, regulatory environment plays a vital role in nurturing the wind energy sector.

The answer also explains various policy initiatives of the government such as support for wind turbine manufacturing, subsea cable installation and onshore exploitation, providing monetary assistance such as feed-in tariffs, production and investment subsidies, pollution tax breaks and investment incentives, offering financial support for these R&D activities in order to bring down the cost wind farm development.

Question (b)

The question intends to analyze how governments can tackle the situation of providing subsidies to companies developing alternative energy sources when analysts are of the opinion that subsidies may cause production inefficiencies and at the same time it promotes non-conventional sources of energy.

The answer explains that the high starting costs associated with building wind turbines; subsidies for a short time frame will help to overcome barriers to entry in the industry. A subsidy to the wind power industry has the economic effect of compensating some of the costs of development in order to produce at a socially optimal level. Subsidy helps to keep prices low in the long run, it is more likely that wind power will be seen as a viable alternative or substitute to traditional energy sources for consumers. The answer also explains that the wind power reduces the domestic consumption of oil and natural gas. This will reduce external costs, thus increasing the efficiency of trade. Government can only provide assistance to companies who are willing to contribute to producing clean energy for the country. Thus, governmental and public initiatives can together bring down the overall cost of wind energy.

However, the answer could have explained the policies adopted by different government worldwide such as mandate an increase in the supply of power from various renewable sources of energy in US, the production tax credit in the US and wind power production incentives in Canada increase attractiveness of wind energy sector as investment option.