Climate notes: Solar Power Boom with Side-Effects

The German solar power industry is in a phase of market shake-out. The boom in solar power is being accompanied by over-capacities on the part of solar cells and modules and falling prices. Despite generous subsidies, the German photovoltaic industry, described as the industry of the future, is suffering a demand-side crisis and subsidization of the photovoltaic branch in Germany has proved an industrial policy debacle. Indeed, while Asian producers are targeting bigger market shares, some formerly leading German solar companies are facing bankruptcy. This reveals the drawbacks of a climate change policy which, according to the burden-sharing principle, tries to channel demand towards certain green technologies, instead of internalizing the external costs of conventional energy provision using economic instruments based on the polluter-pays principle.