The impact of feed-in tariff on green total factor productivity: cross-country empirical evidence

Extensive global climate actions have been implemented through demand- and supply-side initiatives to curb fossil fuel use. Still, GHG emissions continue to rise at an alarming rate, posing threats to economies. Given this context, the present paper focuses on FIT as a market-pull instrument in the RE transition. Despite the positive impact on RE generation and CO2 emission mitigation, the role of FIT in sustainable development remains understudied. Moreover, TFP growth often emerges as the stimulus for continuous growth, but it ignores environmental impacts. Hence, GTFP credits both desirable and undesirable outcomes, acting as an alternative to TFP. This paper aims to examine the effect of FIT on GTFP growth. Outcomes are built on the non parametric MLI under the DDF with global PPF, decomposing into TECH and TECCH. To do so, a panel dataset of 56 countries over the 1990-2019 period has been used. The CUE-GMM estimation method with HAC SEs is also integrated to handle endogeneity and heteroskedasticity in the specification. The findings indicate that the FIT has a positive impact on GTFP and TECCH, and a negligible influence on TECH. Heterogeneous results suggest a similar pattern in OECD countries, but counterbalancing effects in non-OECD countries. While generous rates failed to translate into proportionate green performance, the impacts of FIT in mature RE technologies are more pronounced. As a result, a mix of policies, such as carbon taxes and augmenting R&D subsidies, should be considered to complement FIT. This, in turn, facilitates the simultaneous influences of technological diffusion and the frontier shift. FIT remuneration degression is also imperative to reap the full benefits of FIT in GTFP and TECCH.