Can Policy Feedback Inoculate Clean Transitions? The Case of Spanish Solar

The United States under President Joe Biden has invested an unprecedented amount of money in building out America’s green energy infrastructure, setting the tone for future investment in the climate transition.

How confident can we be that this—or any other set of climate policies—will be around for the long haul? Political science research can help provide insights into when and how climate policy lasts, and when it can be undone. In particular, literature on “policy feedback” identifies the political dynamics that can support or weaken support for laws over time. This blog post summarizes policy feedback literature and applies it to the renewable energy policies of Spain—an early mover in climate transition that experienced ups and downs in its policy rollout.

Policy Feedback in Theory

Policy feedback is the idea that policy influences politics, which in turn influences future policy. In 1993, political scientist Paul Pierson published “When Effect Becomes Cause: Policy Feedback and Political Change,” in which he defines and explains policy feedback with reference to historical examples and academic literature. Pierson finds that “increasing government activity made it harder to deny that public policies were not only outputs of but important inputs onto the political process, often dramatically reshaping social, economic, and political conditions” (p. 595, emphasis added). Pierson explains how policy design can create spaces for political actors to mobilize groups to further change policy. Government expansion during the 20th century—particularly with President Franklin D. Roosevelt’s New Deal programs—mobilized capital, the public, and interest groups into a space that policy created. The Social Security Act of 1935, for instance, led to the creation of the AARP, one of the most powerful interest groups in American history. By changing the politics, this historic legislation also changed the course of future policy.

But with hyperpolarization, consensus building is nearly impossible, and policy changes by one party are often met with severe backlash from the other. So how can we build environmental policy to last in this climate? In “Policy Feedback in an Age of Polarization,” Jacob Hacker and Paul Pierson lay out suggestions for making policy that withstands fervent political opposition and builds upon itself over time. Hacker and Pierson suggest focusing on establishing, entrenching, and expanding policy initiatives to increase their durability. Establishment is ensuring a policy withstands backlash and is not undone before its effects can be fully felt. Entrenchment is defined as the process of making the policy “sticky” or salient enough to the point where it strengthens its own existence. Finally, Hacker and Pierson explain how expansion is critical to policy feedback in the face of polarization. Building a policy that is made to be expanded upon, as was the case for many social security programs, protects against future efforts to undo the policy. Hacker and Pierson highlight that voters and interest groups need to both see (through political transparency) and feel (through tangible gains) the benefits of a policy to ensure successful feedback. Not only are public interest groups critical to policy feedback implementation, but as Alex Hertel-Fernandez points out, policy feedback can build lasting and powerful political coalitions among historically marginalized communities. Hertel-Fernandez suggests that policy that supports collective bargaining and social justice organizations can have a large impact on future policy. He finds that those policies are most likely to last when they can count on support from external social organizations. As such, provisions in the policies themselves that engage and involve justice and labor organizations can further foster organization in disadvantaged constituencies. He highlights the success of Illinois’s “Citizens Utility Board” in supporting energy customers through creative policy means.

While the Biden administration’s pro-labor provisions have not gone as far as Hertel-Fernandez suggests, recent investment laws strongly incentivize union mobilization for federal contractors. The Biden administration’s use of prevailing wage and Buy American requirements—as well as geographic diversification across the US economy—are intended to mobilize a range of constituencies to support the green transition. For example, the Inflation Reduction Act’s domestic production incentives and tax credits are dependent upon certain labor standards. The standards include “paying workers a prevailing wage (the federal government sets this rate for work on public projects; states can set theirs higher) and having a certain amount of work done by those in registered apprenticeship programs.” These provisions strongly encourage developers to use union labor, which would fulfill the requirements and allow them to cash in on a 30 percent tax credit as opposed to the 6 percent they would receive without fulfilling the labor standards. How does this connect to policy feedback? As a wide body of scholarship shows, stronger unions check corporate power and reduce economic inequality.

But that is what the scholarship says. The question remains, how has climate policy feedback worked in practice? In the next section, we look at earlier experiences with Europe’s renewable energy implementation efforts. In particular, we look at Spain, where policymakers enacted, rolled back, and then proceeded with a lasting renewable energy policy.

Policy Feedback in Practice: Solar in Spain

An Uncontrolled Solar Boom

In 2007, Spain began investing heavily in solar and other renewables through a policy known as the feed-in tariff (FIT) mechanism. FITs typically oblige utility companies to buy renewable energy from green energy producers at an above-market (or tariff) price, which the government helps utilities pay for after the fact. The goal was to make renewable energy production more profitable, and therefore increase its supply by luring more investors.¹ The policy worked in attracting producers, but according to policymakers and scholars, the FIT caused a meteoric rise in solar energy production that cost billions more than the government had initially predicted.

When the policy was enacted in early 2007, the Spanish government estimated that the country would not see 400 megawatts of solar production until 2010. But by the fall of 2007, Spain had already installed 350 megawatts. Seeing the sudden boom, the government planned to cut the tariff rate by 30 percent in September of that year, scaring investors and causing an even bigger increase in the sector. By 2011, Spain had reached nearly 4000 megawatts of solar, 10 times the initial estimate.

Since FITs contractually obliged utility companies to buy from renewable sources first, blowing past government estimates of production cost the utilities exponentially more than initially expected. Spanish utility companies could not raise energy prices for consumers to pay for the tariff prices. Furthermore, the recession dropped energy demand by nearly 40 percent. As such, the tariff deficit, or gap between the cost of buying renewable energy and sale of energy to consumers, rose to $5 billion in 2008 alone.

By 2013, the Spanish government owed its utility companies nearly $35 billion in subsidies and the tariff deficit stood at nearly 3 percent of the country’s GDP. To put this into context, Spain’s national deficit for the year 2013 was about 7.5 percent of its GDP. Eventually, the government had to bail out the utilities and shoulder much of the costs in a time where the government itself was struggling with its own debt crisis.

While solar production only accounted for 2 percent of total energy generation, it made up 12 percent of total electric system costs, making it a major target for austerity measures. Despite both political parties in Spain pledging to cut back government spending in the face of high unemployment and public debt, the People’s Party, Spain’s conservative party, won the 2011 election in a landslide, earning 44 percent of the vote to the Spanish Socialist Workers’ Party’s 28 percent.

In 2012, the People’s Party announced a halt of the feed-in tariff policy, with a complete dismantling set for 2013. Additional policies such as the “sun tax” implemented under the conservative government raised costs of solar even further, marking a clear and definitive shift away from the renewable energy subsidy regime of the late 2000s.

However, these changes did not last.

Ten years later, on May 16, 2023, Spain generated enough energy from renewable sources to cover 100 percent of the country’s demand for the longest stretch in the nation’s history. Spain is expanding solar and wind installation so rapidly that the Spanish government had to streamline the permitting process to address the backlog. So what happened? Policy feedback and path dependency can explain why the divestment did not last and a second solar boom is underway.

Protective Effects of Policy Feedback

The political and institutional changes implemented during Spain’s renewable expansion made attempts to dismantle the policy regime short-lived.

First, Spain’s renewable push didn’t start with the implementation of the new FIT in 2007, but with the conservative People’s Party efforts in 2004. According to Spanish economists Raquel Fernández-González, Elena Arce, and Dolores Garza-Gil, “the role of the Spanish State as a regulatory agent is fundamental to promoting renewable energies . . . The institutional framework of the 2004–2007 period led to large investments. During that period, the sector’s year-on-year growth rates reached over 300%.” A law passed in 2004 consolidated Spain’s prior renewable energy regulations into a singular framework with a special focus on energy installation. This new framework built on laws passed in 1998 and 2002, while adding two new ways for renewable energy producers to profit from production. The economists explain that the regulatory changes in consolidation and increased profitability from the 2004 Royal Decree set in motion the solar boom of the late 2000s. So even before the FIT, Spain’s institutional changes created a policy feedback loop that established, entrenched, and allowed for rapid expansion of the solar energy space.

Second, the policy dismantling between 2009 and 2013 itself sparked a politically costly backlash. According to the same study, the FIT rollback decreased the profitability of the solar industry—eliminating jobs, slowing company creation, and decreasing production. The 2011 announcement of cutting the FIT blindsided many investors and led to a loss of over 30,000 jobs in the sector, triggering “political and social fallout.” With the FIT dismantled, the renewable sector in Spain entered a lull between 2013 and 2017, resulting in political backlash.

The unpopularity of these measures stemmed in part from the policies’ direct impact on the Spanish public. The FIT democratized energy production and made it cheaper for energy consumers to become producers—these small producers are known as “self-consumers.” This created buy-in for thousands of Spanish energy consumers to generate their own electricity in an already expensive energy market.² Since more people benefited from the subsidies, rolling back the policies that lowered energy prices was met with fervent opposition. Because of the government’s profit guarantees, around 55,000 Spanish families mortgaged their savings to invest in solar farms. Following the cuts, nearly 30,000 of these families faced bankruptcy.

This economic discontent was channeled into politics, with environmental groups and solar producers strongly opposing the conservative party’s efforts to tax solar self-consumers and reduce future profits for producers. Environmental groups sued the Spanish government for breach of contract. And political pressure prior to the 2015 election pushed the conservative government to lower the amount solar power self-consumption was taxed. The groups that the solar subsidies bolstered made it politically unfeasible for the conservative party to undo the renewable energy subsidy regime in a lasting way. Despite efforts prior to the 2018 election to restart renewable development using auctions, the People’s Party in Spain lost their majority to the Spanish Socialist Workers’ Party, which promptly put renewables investment back on the agenda.

In short, government policy mobilized the public by democratizing energy production and lowering prices. This made the policy regime vastly unpopular to repeal—a prime example of policy feedback at work.

What We Can Learn

Of the European countries that implemented the FIT, Spain had one of the least successful experiences. The United Kingdom, Czech Republic, Italy, and Germany all rolled back the scale of their FIT tariffs when solar production started to take off as well, but they did so because the policy worked. From 1990 when Germany enacted the FIT, to 2022 when it was rolled back, the share of renewable energy production gradually rose from 3.6 percent to nearly 50 percent. Specifically, the FIT made citizens personally invested in the green energy transition. Even in its weakest case in Spain, this mobilization made the renewable transition very difficult to undo completely. Despite a financial crisis and strong political opposition, renewable energy production is thriving in Spain.

By comparison, President Biden’s renewable energy policy regime mobilizes exponentially more capital, addresses utility and consumer costs, and most importantly, engages a much wider array of citizens and stakeholders than Europe’s FIT. As a recent Roosevelt Institute report by Jamila Michener states, policy feedback effects can be very difficult to predict. However, Michener explains, “social constructions and power are core characteristics of target populations that should be evaluated when thinking prospectively about the likelihood, direction, and intensity of policy feedback loops.” Bringing in powerful constituencies such as unions and business owners increases the likelihood of more effective positive feedback loops. Additionally, the millions of jobs that green energy transition can create could have a much larger positive effect on the domestic economy than Spain’s FIT, making it potentially even more difficult to undo in the long run.

Subsidies in America’s clean energy industry that dramatically lower costs, both in the short term through incentives and in the long term through R&D, can have a similar effect without the political backlash of rising costs for consumers and utility companies. Policy feedback has great explanatory power for why investments in renewables will continue to reap future benefit, and provides a framework for how policies should be shaped in order to remain entrenched in the political economy.

June, July, and August 2023 were the hottest months on record since 1880. Addressing the climate crisis at scale will require multiple decades of active investment. Policy feedback can be a critical means of ensuring policy longevity, and failing to deliberately implement them can make policy vulnerable to rollback. The environmental subsidy regime put in place by the Spanish government during the late 2000s was not optimally designed, cost billions of euros, and faced heavy opposition from key stakeholders. But despite the weakness of this one program, policy feedback—through mobilizing capital, people, and interest groups—ensured lasting change in the renewable energy sector. Spain is one of the global leaders in solar energy installation and deployment, despite having their main policy upended just five years after implementation. Given the Inflation Reduction Act creates buy-in and mobilizes significantly more capital and stakeholders, we can expect the feedback effects to be far greater, securing its longevity.

Footnotes

¹Despite being more ubiquitous in Europe, the policy dates back to the Carter administration’s National Energy Act in 1978, which incentivized energy conservation and early development of renewables.

²Specifically, Spain’s FIT led to an increase in installations of roof-mounted solar panels, which were more accessible to the public than ground solar panels. According to a manager of Spain’s solar association, “The [roof installations] generate close to places of consumption. It is more distributed and close to consumers.” The roof installation subsidies put in place by Spain’s socialist party created incentives for households and small businesses in Spain to generate a portion of their own electricity using photovoltaics.