The solar industry

Today the solar stocks, especially the US solar stocks, rose sharply on the market ahead of the third and final US presidential debate, the polls show that Hillary Clinton is about 7 percent ahead of Donald Trump. This shows how influential the government policy is in the energy sector. Hillary Clinton, the Democratic candidate, seems to be more committed to the task of slowing down the global warming and encouraging green energy than Donald Trump, the Republican candidate.

Normally the green energy sector is considered to have positive externalities that require subsidies from the government in order to get into the socially desirable output. However, there is another theory that explains why the government needs to provide subsidies to the green energy sector, that the early stage investment is too big for a startup business or a sector, so the government needs to step in and help the technology and the businesses to develop.

Based on the first argument about the necessity of the government subsidies, once the oil price decreases, the subsidies should become even greater, as the negative social costs of the fossil fuel increase. This does not happen, maybe because of several reasons. Firstly, the government subsidy plan is not as simple as our model, it does not only depend on the factor of externality but also many other factors. Secondly, the positive externalities of the green energy may not be as big as we imagine. Many other policies may also contribute to supporting the green energy sector other than direct financial support.

Based on the second argument, when the oil price is low, the government also should increase the subsidies, as the competition of the energy sector increases.