Government intervention in green industries: lessons from the wind turbine and the organic food industries in Denmark

Abstract

Government intervention in green infant industries may be justified as a strategy to increase the provision of public goods. How should government policies be designed to promote such industries? One way to analyse this question is to compare government intervention in green infant industries in which it has been successful with green infant industries in which it has been less successful. The Danish government has intervened intensively in the wind turbine industry and organic farming sector mainly for environmental reasons since 1992 and 1987, respectively, but with very different impacts. While the electricity market share of wind energy reached 20% in 2007, organic food consumption lags behind with a food market share of approximately 8.5% in 2007. This paper compares the packages of policy instruments applied in the two industrial sectors and assesses whether differences in instrument choice may explain the significant differences in market shares. It is demonstrated that government intervention in the wind turbine industry has emphasized the use of policy instruments designed to increase demand for wind energy, whereas organic farming policy has put more emphasis on instruments motivating farmers to increase supply. This may be an important factor explaining variance in growth. Finally, the paper analyses whether the lessons from government policy aimed at promoting the wind turbine industry can be transferred to organic farming policy.