Economic Policy Options Regarding Windfall Effects from Government Subsidies

Government support schemes for energy efficiency and climate protection are intended to stimulate investment that would not have taken place without the subsidy. A key problem is deadweight effects, whereby subsidized measures would have been implemented even without the support. As the unobserved reference scenario cannot be directly measured, deadweight effects can only be estimated indirectly. This paper analyses their economic policy significance and summarises current empirical findings from Germany, Switzerland, Austria and other European countries. The results show that deadweight effects occur regularly in environmental and energy efficiency support schemes and vary significantly depending on the design of the scheme, the target group and the methodology. For broad-based programmes, they often range from 40 to 50 percent, whilst more targeted support schemes show significantly lower figures. At the same time, it is clear that deadweight effects should not be assessed in isolation, as front-loading, expansion and spillover effects also influence the net impact. Deadweight effects are not a matter for ex post monitoring and sanctions, but rather for ex ante design and the audit framework of a state aid scheme. On this basis, five design approaches to reducing deadweight effects are discussed, including more precise targeting of beneficiary groups, structured additionality assessments, tailored ex ante contract design, and accompanying monitoring and ex post evaluation. Overall, the paper advocates a differentiated assessment of funding programmes that takes into account not only additionality but also transformative impact and targeting accuracy.