CREATION OF ECONOMIC GROWTH AND COMPETITION THROUGH GREEN-INDUSTRIAL POLICIES

This dissertation contributes to the emerging literature on green industrial policies. Green industrial policies fill gaps left by classical industrial policies by simultaneously addressing environment and development concerns. I concentrate my analysis on the electricity industry in Colombia, as a case study for similar developing economies. I use macroeconomic analysis, industrial organization theory and applied micro-econometrics to present policy foundations of how economies derive economic benefits in a green energy transition. My first chapter contains analysis on the impact of green industrial policies for advancing viable environmental and development goals. To channel investments in clean energy, I provide the conditions in the design of long-term forward contracting as a mitigating strategy for Missing- Markets—a recurrent market failure in the electricity industry. Long-term forward contracting establishes a fixed price signal for electricity, providing stability as well as standards of fairness for investors, producers and consumers. This framework can expand employment opportunities in Colombia’s energy sector compared to a Business-as-Usual scenario. My second chapter quantifies how market power and uncompetitive behavior in forward markets affect equilibrium prices in the electricity industry. Rent-seeking behavior might impede employment creation from green energy investments. The literature on competition in wholesale electricity markets has largely overlooked the effect of forward contracts on market power. I show how the inclusion of price-endogenous forward contracts—observed contract terms that can be exploited in favor of participants with market power—can deteriorate competition. My empirical results indicate a significant positive relation between increases of electricity prices and market power in Colombia, which can be exacerbated during extreme weather conditions. I use a series of counterfactuals in an agent-based optimization model to verify my findings. Finally, this dissertation quantifies the impact on prices of increasing non-hydro renewables in the electricity industry. Intermittency of clean energy sources can be seen as an apparent obstacle in the reliable operation of electricity systems—one that could delay a clean energy transition. Using principal-agent and empirical models, I challenge this view showing that clean energy may in fact contribute to the reliability and stability in modern power systems