The Impact of Private Interest Contributions on Energy Policy Making

In the last two decades, many U.S. states introduced support policies to promote electricity generation from renewable energy sources. Renewable portfolio standards are their most popular policy choices to date. This paper tackles the question why some state legislators were front-running the trend of RPS implementation while others adopted policies just recently, and again others have not incentivized investment so far. In short, what drives states to support renewable energy? We base our empirical analysis on theoretical reasoning. First, we present an application of the common agency model developed by Dixit et al. (1997) to better understand the impact of special industrial interests on policy decision-making. Second, we compile data on financial contributions of conventional energy interests (CEI) and renewable energy interests (REI) to state-level policymakers between 1998 and 2006. Third, in a series of panel, hazard and tobit regressions, we test the impact of these financial contributions on (i) the probability of a state to adopt a RPS policy and (ii) on the stringency of the RPS. We also control for state effects, time trends, and a set of socio-economic and political covariates. Combining our empirical framework with the theoretical model produces key insights into U.S. state level energy policy making. First, CEI have donated over-proportionally to state-level legislators affiliated with the Republican party while contributions from REI went largely to Democrats. Second, we reveal statistically significant links between the likelihood of RPS adoption and private interest contributions. Financial contributions from CEI have a negative impact on the likelihood of RPS adoption while REI contributions have a positive impact. Third, the estimates show a similar – albeit less significant – pattern on RPS stringency.