Austerity policy and welfare regimes in the EU

Material Information

Austerity policy and welfare regimes in the EU
Alternate title:
What is the impact on the environment?
Ogle, Travis B. ( author )
Place of Publication:
Denver, Colo.
University of Colorado Denver
Publication Date:
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1 electronic file (87 pages) : ;

Thesis/Dissertation Information

Master's ( Master of Arts)
Degree Grantor:
University of Colorado Denver
Degree Divisions:
Department of Political Science, CU Denver
Degree Disciplines:
Political Science
Committee Chair:
Spehn, Thorsten
Committee Members:
Breger-Bush, Sasha
Berry, Michael


Subjects / Keywords:
Environmental aspects -- Economic policy -- Europe ( lcsh )
Welfare state -- Environmental aspects -- Europe ( lcsh )
bibliography ( marcgt )
theses ( marcgt )
non-fiction ( marcgt )


The financial crisis of 2008 began the worst economic downturn in the West since the Great Depression. It spread throughout the world, and hit Europe in the form of a currency crisis. Many states in the West, especially those in Europe, responded to these crises with several economic measures collectively known as austerity. The enactment of austerity on such a broad scale provides an opportunity to study other facets of the international community. One such facet is the environment. The environment is a public good, and a healthy environment requires some form of government assistance to maintain. Since austerity measures involve cuts to government spending and capacity, they should have some measurable effects on environmental indicators. Furthermore, states have previous spending commitments; primarily the welfare apparatus. The structure of the welfare states can have far-reaching effects on both the economy and society. It stands to reason that the structure of the welfare state affects the intensity of the impact of austerity on the environment. This thesis will argue that austerity measures do have an effect on the environment and that the effect is either intensified or mitigated according to the structure of the welfare state.
Thesis (M.A.)--University of Colorado Denver.
Includes bibliographic references,
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Department of Political Science
Statement of Responsibility:
Travis B. Ogle author.

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Auraria Library
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B.A. University of Colorado, Boulder 2009
A thesis submitted to the
Faculty of the Graduate School of the
University of Colorado in partial fulfillment
of the requirements for the degree of
Master of Arts
Political Science Program


This thesis for the Master of Arts degree by
Travis B Ogle
has been approved for the
Political Science Program
Thorsten Spehn, Chair
Sasha Breger-Bush
Michael Berry

Ogle, Travis B (M.A., Political Science)
Austerity Policy and Welfare Regimes in the EU: What is the Impact on the
Thesis Directed by Associate Professor, Clinical Track Thorsten Spehn
The financial crisis of 2008 began the worst economic downturn in the West since
the Great Depression. It spread throughout the world, and hit Europe in the form of a
currency crisis. Many states in the West, especially those in Europe, responded to these
crises with several economic measures collectively known as austerity. The enactment of
austerity on such a broad scale provides an opportunity to study other facets of the
international community. One such facet is the environment. The environment is a
public good, and a healthy environment requires some form of government assistance to
maintain. Since austerity measures involve cuts to government spending and capacity,
they should have some measurable effects on environmental indicators. Furthermore,
states have previous spending commitments; primarily the welfare apparatus. The
structure of the welfare states can have far-reaching effects on both the economy and
society. It stands to reason that the structure of the welfare state affects the intensity of
the impact of austerity on the environment. This thesis will argue that austerity measures
do have an effect on the environment and that the effect is either intensified or mitigated
according to the structure of the welfare state.
The form and content of this abstract are approved. I recommend its publication.
Approved: Thorsten Spehn

This work is dedicated to my loving wife, Sara. Without her patience,
perseverance, and faith in me, I surely would have failed before I even started.

I. INTRODUCTION........................................................1
II. LITERATURE REVIEW...................................................6
2.1 - Austerity..............................................6
2.1.1 Theoretical short-term effects of Austerity in the EU.12
2.1.2- Austerity and Structural Adjustment............12
2.2 - Environment...........................................14
2.2.1 - SAPs and the Environment......................14
2.2.2 - Recession, Austerity and the Environment......15
2.3 - Worlds of Welfare Capitalism..........................21
2.3.1 - Gosta Esping-Andersen's Three Worlds of Welfare
2.3.2 - Criticisms....................................25
2.3.3 - Southern Regime...............................27
III. METHODOLOGY, HYPOTHESES, AND RESULTS...............................29
3.1 - Notes on Sample Selection.............................29
3.1.1 - The European Fiscal Compact...................30
3.1.2- Environmental Regulation in the EU.............31
3.2 - Interrupted Time Series...............................34
3.2.1 - Methodology...................................34
3.2.2 - Results.......................................39

3.3 - Multivariate Regression Analysis Methodology............39
3.4 - Regime Analysis.........................................41
3.4.1 - Methodology.....................................41
3.4.2 - Results.........................................42
3.5 - Hypothesis One: Greenhouse Gas Emissions................46
3.5.1 - Methodology.....................................46
3.5.2 - Results.........................................48
3.6 - Hypothesis Two: Percentage of Renewables................52
3.6.1 - Methodology.....................................52
3.6.2 - Results.........................................54
3.6.3 - The UK: Methodology.............................56
3.6.4 - Results.........................................58
3.7 - Hypothesis Three: Environmental Taxes...................59
3.7.1 - Methodology.....................................60
3.7.2 - Results.........................................61
IV CRITICISMS..............................................................64
V. IMPLICATIONS AND CONCLUSIONS............................................66

1. Welfare State Typology................................................28
2. Descriptive Statistics................................................37
3. Interrupted Time-series Results.......................................38
4. GLS Regime Analysis...................................................44
5. Correlation Matrix for Greenhouse Gas Analysis........................49
6. Greenhouse Gas Emissions Analysis.....................................50
7. Austerity and Energy Consumption......................................54
8. Renewables, Austerity, and Energy Consumption.........................55
9. Percentage of Renewables Sample Limitation............................57
10. Environmental Tax Revenue Analysis....................................62

1. Interrupted Time-series Formula......................................36
2. Standard Argumentation...............................................41
3. Argumentation with Intervening Variables.............................41

The financial crisis of 2008 began the worst economic downturn since the Great
Depression. It was larger and farther reaching than the oil crisis of the 1970s and dwarfs
the dot com crash of the late 1990s. European governments responded by taking on
greater public debt to save private businesses, spurring on a debt crisis. Many states in
the West, especially those in Europe, responded to these crises with several financial and
economic measures collectively known as austerity. The enactment of austerity on such a
broad scale provides an opportunity to study other facets of the international community.
One such facet is the environment.
It is fairly well accepted that the environment is a public good, and a healthy
environment requires some form of government assistance to maintain. Since austerity
measures involve cuts to government spending and capacity, they should have some
measurable effects on environmental indicators. Furthermore, states have previous
spending commitments, primarily their welfare apparatus. The structure of the welfare
states can have broad reaching effects on both the economy and society. Because of
those profound effects, it stands to reason that states with differing welfare structures
(and consequently differing spending habits, economic needs, and societal and economic
structures) might experience the impacts of austerity on the environment differently. I
argue that austerity measures do have an effect on the environment and that effect is
either intensified or mitigated according to the structure of the welfare state.
There seems to be a gap in the literature on this subject. Much scholarly work has

been done on how the recession might affect the environment, but very little on the
response to the recession (i.e. austerity) on the environment. I could find no studies that
examined the role of the welfare state in this regard. This paper seeks to fill that gap.
This study begins with a literature review covering the history of austerity as a
concept, the intersection of the environment, recession economics, and austerity, and
welfare state typology. In the following section on austerity, I define austerity as a form
of voluntary economic deflation that involves enacting severe cuts in government
spending, taxes, wages, and prices, or a combination thereof, aimed at reducing
government's budget deficits and debt, and restoring its competitiveness in financial
markets. To help justify this definition that is used to operationalize austerity in the data,
this section also gives some idea of where the modern concept came from. Beginning
with the founding of the Austrian School of economics, I trace the intellectual history of
austerity as a concept through the Great Depression, the stagflation of the 1970s, the
rebirth of liberal economic theory in the 1980s, and its most recent incarnation in the
ongoing European integration project. Next, I give a brief section outlining some of its
theoretical impacts on the economy, focusing specifically on its detrimental effects on
consumption and demand. I conclude this section by drawing distinctions between
austerity and the Structural Adjustment Plans (SAPs) championed by the International
Monetary Fund (IMF) and World Bank. It is important to make this distinction because
SAPs have long been the objects of study, and there is a large body of literature on their
potential effects on the environment. There is enough difference between austerity and
SAPs that their effects on the environment should differ.

The next section explores the intersection of recession economics and the
environment. I begin with a brief overview of the literature on the effects of SAPs on the
environment and their potential differences from austerity. I then examine the literature
on the recession and the environment and find that it falls into two broad categories; that
the recession has negative effects on environmental indicators and the green economy
and that the recession has positive effects on environmental indicators and the green
economy. The first vein of thought says that a state can protect the environment or the
economy, but not both. Further, the recession brought on a credit crunch that has made
investing in the green economy much more difficult. Austerity measures compound this
by reducing the capacity of the government to invest as well. Overall, economic
recession and austerity have negative impacts on the environment. Alternatively, the
second school of thought says that the recession is really a blessing in disguise for the
environment. A state need not choose between the environment and economic
performance. Greenhouse gas emissions tend to go down during recessions, for example.
Austerity measures can provide an opportunity to restructure the economy to place more
emphasis on environmental health and social justice. Overall, economic recession and
austerity have positive effects on the environment.
To represent the welfare state, I will use the typology developed by Gosta Esping-
Andersen in his seminal work The Three Worlds of Welfare Capitalism. In it, he
examined the welfare states of the then Western world according to three primary criteria:
decommodification levels, the effect of the regime on the structuring of the social order,
and how the burden of providing welfare is distributed among the market, state, and

family. He found that they crystallize into three distinct regimes: the Liberal, the
Conservative, and the Social-Democratic. I will examine criticisms of this work and
address them with the addition of a fourth regime encompassing Southern Europe.
In the next section, I will employ mixed methodologies to explore what impacts
austerity has on the environment and how the welfare state can affect them. I will begin
with a preliminary interrupted time series analysis to test if there is any correlation
between the effects of austerity on the environment and the structure of the welfare state.
It will show that there is,prima facie, some correlation between the structure of the
welfare state and the effects of austerity on the environment. Those in the Social-
Democratic regime seem to be less affected.
I will then use the statistical software Stata to run several multivariate regression
analyses to support these correlations between different aspects of the welfare state and
environmental effects of austerity. A quantitative, non experimental method was selected
to capture generalizable trends from a large amount of data available on the subject, and
due to a lack of a viable control group. The first analysis uses only regime type as a
variable for study, and shows that there is a correlation between the severity of austerity's
effects on the environment and nominal membership in different welfare regimes for at
least some of the dependent variables.
Using the results of that model, three additional hypotheses are tested. In them,
one environmental variable that was shown to be affected by austerity and the welfare
state in the regime analysis is tested against the presence of austerity measures and data
selected to represent one of the criteria for Esping-Andersen's typology. For example, the

first hypothesis tests whether the societal structure of a welfare regime, as represented by
unemployment coverage rates and state spending on daycare and at home services, will
change the effects of austerity on greenhouse gas emissions. The second hypothesis
argues that welfare regime does not have an effect on the percentage of energy from
renewables. The third tests the relationship between the state, family, market mix,
represented by public social expenditure (for the market/state dichotomy) and unpaid
family workers (for reliance on the family), and environmental tax revenue.
By and large, the results of the analysis support the argument. Austerity does
affect the environment. Those effects are changed according to the structure of the
welfare state. Those states that structure their welfare systems in a more Social-
Democratic matter seem to have experienced less of an impact on the environment from
austerity measures. The only result that runs slightly counter to that finding is the
percentage of renewables. That, however, does seem to respond to a state and market
split, one facet of the welfare regime typology.
I end the thesis with concluding thoughts and possible implications of the work
for future studies; specifically, the competing modes of European integration typified by
austerity and renewable energy policy and applications to other policy areas.

Since this topic combines several different types of literature, I will begin with
offering a brief history of the concept of austerity, with a particular focus on the European
context. Next, I will examine some of the previous work done on environmental issues
and economic downturn, focusing particularly on the environmental economics of the
Great Recession.
2.1 - Austerity
The debate on austerity in the current political climate has become very acidic.
What began as debate on the merits of austerity measures during recessions has, in many
ways, devolved into a debate along dogmatic ideological lines, with each arguing for or
against as a matter principle rather than sound policy. Those on the neoliberal side tend
to ignore the very real and present social effects of austerity as well as a perceived
democratic deficit. They seem to take the tone of an upset parent scolding a child and
giving them some tough love, forgetting that these are real people with a right to
choose how they are governed. They have a right to reject austerity. On the other side,
critical theorists decry austerity as an extension of the economic/ruling elites control
over the subordinate classes, citing the very social costs that neoliberals tend to ignore.
Some even argue that in the case of Europe, it is an instance of the core (i.e. Berlin)
extending control over the periphery (i.e. Greece). They tend to ignore that it was the
free market system and common currency installed by the ELI that allowed for former
right wing dictatorships, like Spain, Portugal and Greece, to enjoy political freedoms and

general increases in quality of life for over thirty years. Furthermore, only so much
blame can be put on the international financial system. In many ways it was Southern
Europe's own fuzzy bookkeeping that spurred on the crisis.
This account of austerity attempts to find a middle ground, recognizing both the
benefits, as the neoliberals do, and the costs, as the critical theorists do. It follows the
general narrative of Mark Blyth's Austerity: The History of a Dangerous Idea,
supplemented by original research. While critical of austerity, Blyth provides a relatively
even-keeled account of its intellectual roots and history. It is included as justification for
the definition of austerity used in this study.
Austerity is a word with several different meanings, and can involve several
different policy measures. It has been used interchangeably in recent years with terms
like fiscal adjustment, fiscal tightening, belt tightening, voluntary fiscal contraction and
many more. Different policy makers and economists frequently have very different ideas
of what austerity is and what it entails. Blyth (2013) defines austerity as a form of
voluntary deflation that involves enacting severe cuts in government spending, taxes,
wages, and prices aimed at restoring competitiveness in financial markets. While a
strong definition, it lacks a couple of important components. First is that over the years
that the concept has been accepted, it has involved any number of combinations of the
cuts listed by Blyth. The concept, and the policies that flow from it, have gone through
waves of popularity over the past centuries. Each time it comes up, it takes on slightly
different characteristics (e.g. tax cuts and government spending cuts; just tax cuts; just
spending cuts). Second, Blyth leaves out a key concept pertinent to this round of

austerity in Europe, government debt. To help address these issues, I have slightly
modified Blyth's definition. For the purposes of this study, austerity can be defined as a
form of voluntary economic deflation that involves enacting severe cuts in government
spending, taxes, wages, and prices, or a combination thereof, aimed at reducing
government's budget deficits and debt, and restoring competitiveness in financial
markets. To place the most recent incarnation into context, the following is a brief
intellectual history of austerity beginning with the founding of the Austrian School and
ending with the most recent incarnation in Europe.
Austerity's earliest proponents were Enlightenment thinkers. They saw a small
government, low taxes, and saving as the principle drivers of growth. Their ideas
remained largely unchallenged until the mid 19th century when JS Mill introduced
concepts of social justice into the liberal economic model.
This period of time also saw the beginnings of the Austrian school of economics.
Founded by Carl Meneger, they eventually rejected the social equality aspects of John
Stuart Mill's work and embraced a more traditional liberal perspective, being very against
state influence in the economy. Because value is subjective, they argued, the market has
long term evolutionary characteristics that we do not and can not comprehend in the
present. The state interference in the economy could have grave, unforeseen
The most prominent economist of the Austrian School today is F.A. Hayek. He
supported the classical idea that saving encouraged investment and investment drives
growth. In order to drive that saving, there must be a decrease in the preference for

consumption (Paraguez 2013). Most pertinent to the discussion of austerity is his
position and ideas on the business cycle.
For Hayek, banks drive the boom and bust business cycle. Assume a bank
expands its availability of credit without increasing savings to cover that credit. This
expansion drives down interest rates, which signals to entrepreneurs that projects that
were formerly too expensive are now within reach. Spending and investment increase,
but saving does not. In this scenario, what looks like real growth is credit driven short
term inflation. During this boom, there would inevitably be too much or too much of the
wrong kind of capital. For example, more money spent on producing non-finished goods
would mean a supply shortage of finished goods, driving up their prices. Rising prices
means rising profits; rising profits attract investors. Investors borrow, make profit, and
pay the bank's interest. The bank, now with more money, extends more credit, investors
borrow more, and the cycle continues creating a bubble. When production normalizes,
the bubble pops. This is the natural business cycle (Hayek 1931). For the Hayek and the
Austrian school, a bust is just a return to normal levels of consumption and production; a
market correction. Government intervention makes the bust worse by clouding signals to
entrepreneurs, making the bust seem softer and take longer to recover from. Limiting
government intervention would make the busts shorter and less painful, like tearing off a
band-aid (Kitromilides 2011; Pollin 2010; Ploanyi-Levitt 2013). It is reasonable to
assume that during an economic bust, the government would have to deficit spend in
order to interfere in the economy in any way, be it with bailouts or extended social
assistance. Therefore, austerity is the only reasonable response to a crisis.

Austerity lost much of its steam after WWII and the social contracts of the late
1940s and 1950s. The end of the Bretton Woods regime and the beginning of stagflation
in the 1970s constituted the end of the domination of Keynesian economics. A major
economic voice during this time was Milton Friedman. He pioneered the return of the
quantity theory of money, arguing that government spending on employment will only
lead to inflation. When the economy is hit by a shock, the government should remain
austere (Friedman 1968) His ideas were carried on the wave of conservatism in the
1980s. During this period, the US and US led international financial institutions, the
International Monetary Fund (IMF) and World Bank (WB), developed a series of policy
prescriptions for economic success. These economic ten commandments are known
as the Washington Consensus. Public deficits and debt were seen as negatively impacting
the global financial order. According to the Washington Consensus, fiscal discipline was
a necessary part of any free market oriented policy (Neto and Vemengo 2005; Williamson
1990). It is, in fact, the first of the ten commandments. This was the Reagan and
Thatcher mantra, There is no alternative.1
The most modern version of austerity was bom in the European project. Luigi
Einaudi, who was an intellectual driver of European integration, originated ideas that
would later turn into expansionary austerity. He created combination of ordoliberalism
and public choice economics and his proteges would drive the fiscal austerity in the EU
in the 21st century. They argued that austerity can be expansionary; fiscal discipline is
very beneficial to growth in the long ran. To be most long lasting, this discipline has to
1 There is no alternative is attributed to Margaret Thatcher, who used the phrase several times in
speeches, interviews, and writings form her first term as Prime Minister of the UK.

take the form of deep cuts to government wages and social welfare programs (Alesina
and Perotti 1996). They also argued that they should be made in times of economic
downturn rather than in boom periods to strengthen and intensify their effects (Alesina
and Ardagna 1998). Furthermore, these cuts would not be politically costly.
Governments that made these cuts, they argued, would be popular (Alesina, Perotti,
Tavares 1998). One piece that became very prevalent (and perhaps even the fiscal
handbook) during the European debate was Alesina and Ardagna's essay Tales of Fiscal
Adjustment (Blyth 2013). They sum up this school of thought as follows:
Three ingredients seem to be important for a successful,
long lasting and expansionary fiscal adjustment. A
composition of the adjustment that emphasizes spending
cuts on transfers, welfare programs and the government
wage bill. Some form of wage agreement with the unions
that ensures wage moderation. A devaluation immediately
before fiscal tightening. Instead, no large tax based fiscal
adjustments are expansionary even if they are accompanied
by a devaluation. Finally, governments that implement
large fiscal adjustments typically remain in office.
(Alesina and Ardagna 1998 p4).
The final piece that has been used to further the idea of fiscal austerity as a way to
improve growth and as a good response to financial and economic crisis is the essay
Growth in a Time of Debt by Carmen Reinhart and Kenneth Rogoff In it, Reinhart
and Rogoff argue that any state with at debt to GDP ratio over 90% will have an
extremely difficult time growing its economy. This holds true for both developed and
emerging economies. This paper and its arguments were widely used as evidence for
austerity in the US deficit debate and the European sovereign debt crisis. The validity of

this paper has been since called into question due to coding errors and methodological
issues (Herndon, Ash, and Pollin 2013).
2.1.1 - Theoretical and Short-term Effects of Austerity in the EU
As stated above, the debate around this newest wave of austerity is an ongoing
one. The scope of this paper is not to add to the current debate of austerity's
effectiveness. There is much literature and little consensus on that matter. It is, however,
important to point out some of the well accepted effects of austerity in the short-term.
The effects of modern European austerity can be divided into two primary
categories, short and long term. While the long-term effects, which austerity is
admittedly geared towards, are still hotly debated, there is a fairly broad consensus on
their effects in the short-term. As of writing, the long-term is still too far out to judge
what effects austerity will have, or if it will be successful in its identified goals. The
short-term effects, however, has been discussed robustly. They will tend to be negative.
The main idea behind many of the austerity measures in Europe today, as explained by
their proponents, is that a shared sacrifice now will pay large dividends in the future.
Current austerity measures have been linked to short-term decreases in labor productivity
(Oulton and Sebastia-Barriel 2013), increases in unemployment (Furth 2013), and
decreases in private consumption (Fatas and Mihov 2001) and demand (Boyer 2012).
Even Roberto Perotti, who helped pioneer the current style of austerity in Europe, has
admitted to its detrimental short term effects (Perotti 2011).
Section 2.1.2 Austerity and Structural Adjustment
The astute reader will notice many similarities between the concept of austerity as

laid out above and structural adjustment programs (SAPs) championed by the IMF and
World Bank. Both are usually implemented as a response to some sort of exogenous
shock and are aimed at returning growth rates to pre-shock levels (Balassa 1982). There
are some key aspects of each that would potentially differentiate their effects on the
environment form one another.
All SAPs are different, but share some common characteristics. Most come with
some form of public debt restructuring, mostly involving a form of austerity, as a
condition for a bailout loan (Collier and Gunning 1999), but they frequently come with
many other changes as well. For example, many involve privatizing national industries
(Summers and Pritchett 1993). They also require lowering of trade barriers and other
measures protective of domestic industry and opening capital markets for more foreign
direct investment (Sayson 2006). Market determined, competitive exchange rates and
interest rates are also frequently required (Collier and Gunning 1999).
In the European context, many of the conditions for an SAP have already been
met. Many of the formerly national industries in Europe have already been privatized or
semi-privatized. Economic integration has already driven the creation of competitive and
market set interest rates as well as a complex exchange rate system. The EU is one of the
most liberal trade regimes in the world, and there are very few, if any, impediments to
capital and labor flows between member states. This leads to three primary differences.
First, European austerity does not require complete openness to international trade.
Those decisions are made on the EU level and apply equally to all member states.
Secondly, austerity in the modern European context requires significantly fewer changes

than does a SAP from the IMF or World Bank. Third, the vast majority of austerity
measures in Europe, with the exception of Greece, Portugal, Spain and Ireland in this
study, are internally chosen rather than externally imposed. Since austerity differs from
SAPs in these substantial ways, it is safe to say that they will have different effects on the
2.2 - Environment
There is wide consensus that the environment, however vaguely or precisely
defined, is a public good. As such, the government has a legitimate role to play. To
avoid the tragedy of the commons, the state must take responsibility to ensure a
continuing healthy environment. To do so, it implements regulations on pollution levels,
sets aside land for protection from development and resource extraction, and invests in
new energy resources. These programs are unable to survive with out government
assistance (Ragwitz et al. 2011; De Jager et al., 2011).
2.2.1 - SAPs and the Environment
As noted in section 2.1.1, SAPs and austerity measures are similar, but distinct.
There is a wide body of literature dealing with the environmental impacts of SAPs, and it
shows that SAPs have both positive and negative impacts on the environment (Abaza
1996; Opschoor and Jongma 1996). On the positive side, SAPs can result in the
elimination of subsidies that encourage inefficient use of natural resources and chemical
pollutants. Furthermore, they can promote economic and price stability which can lead to
a higher standard of living and greater demand for high environmental quality (Kessler

On the negative side, SAPs can have a dramatic effect on unemployment and
poverty, increasing both. This, combined with the removal of subsidies for basic
commodities (e.g. food and fuel), encourages over use of natural resources, such as
opening up previously protected land for agricultural use. Economic reorientation to
exports can encourage cash-crop farming which can lead to environmental pollution and
degradation. Elimination of trade barriers encourages investment in resource extraction
and heavy industry, both of which can have extreme impacts on the environment. Finally,
deep cuts to government spending and bureaucracies lead to decreased state capacity to
enforce environmental regulations and provide basic public services like urban sanitation
(Kessler 1998).
Because the details and implementation of SAPs differ greatly, there is large
variation in their impacts on the environment, and most studies find it difficult to draw
firm conclusions. However, there does seem to be some agreement that the negative
impacts outweigh the positive (Munasinghe and Cruz 1995; Bishop and Young 1995).
Many of the effects of SAPs on the environment, both positive and negative, do
not necessarily apply to European austerity. For example, increases in standard of living
are associated with more care for the environment, but Europe already enjoys some of the
highest standards of living. SAPs encourage cash cropping, which can lead to
environmental degradation. This is not at issue in Europe. The literature here, while
related, is lacking and not necessarily applicable.
2.2.2 - Recession, Austerity and the Environment
The environment and recession economics intersect in the literature in two

primary ways. The first vein of thought says that recessions have negative impacts on the
green economy and can actually lead to increases in negative environmental indicators.
The second argues that recessions lead to decrease in negative environmental indicators
and positive effects on the green economy though opportunities for market
restructuring. The green economy can be defined as investments and new markets
aimed at increasing renewable energy sources and cleaning up waste promoted as
necessary, efficient, and affordable by proponents (Withagen and Smulders 2012).
The more traditional neoliberal stance argues that a state can protect the economy
or the environment, but not both. In order to grow the economy, environmental
regulations should be relaxed in favor of goring industry and the employment that comes
with it (Kraft 1996, 169 170). Some studies have noted increases in greenhouse gas
(GHG) emissions associated with recovery from the recession. For example, global
energy consumption passed economic growth in 2010 and there has been rapid increase
in energy consumption in developing economies. Although the recession resulted in an
initial reduction of GHG emissions, they were on the upswing by 2010 (Peters et al.
Many studies conclude that recessions can negatively affect the green economy
as well. They come from multiple perspectives ranging from classical efficiency
arguments to more critical stances. On the more critical side, Bina and Camera (2011)
argue that the idea of using a green new deal to help recover from recession is based on
the neoclassical assumption of unlimited economic growth. This makes it unsuitable for
guaranteeing environmental and social justice (Bina and Camera 2011). There are more

traditional economic arguments as well. The recession brought a credit crunch, reduction
in capital accumulation, and an uncertain climate. Austerity brought severe cuts to states'
budgets. These affect innovation, investment, and development of the green economy
(Obani and Gupta 2013). For example, economic crisis and budget cuts in the UK have
negatively impacted government supported renewable energy schemes (Finney, Sharifi,
and Swithenbank 2012). The recession has also negatively affected the carbon market in
the EU (Feng 2011). The recession led to a reduction in energy demand and a surplus of
carbon certificates, leading to a large price drop in carbon (Gilbertsen and Reyes 2009).
Some scholars argue for strengthening the carbon market and the complete
elimination of secondary programs for GHG emission reduction in the EU. For example,
Bohringer (2013) argues that emission and carbon taxes are sufficient to achieve
predetermined targets and help mitigate the effects of anthropogenic climate change.
Furthermore he argues that government support for renewable energy sources (RES)
programs have negligible effects on employment and welfare, and those gains hinge
tremendously on the type and level of subsidy (Bohringer 2013). Others have supported
the strengthening of carbon markets through policy interventions such as price floors,
price ceilings and price collars, noting that execution of these policies is very complex
and would have to be uniform to avoid market inefficiencies (Wood and Jotso 2011; Fell
and Morgenstern 2010; McKibben et al 2009). Some studies question the motives of
environmental programs as well, noting that they remain in gray areas and that
environmental protection could easily hide the true motive of protecting a national
industry (Kolk and Pinske 2009).

There are plenty of counter arguments that take the stance that the recession has a
positive effect on the environment and the green economy. For example, Bowman and
Thompkins (1993) used a multivariate analysis to analyze the effects of environmental
regulation on the economy and concluded that there were none. In fact, there was a
strong positive correlation between economic performance and environmental regulation.
States need not choose between a healthy environment and a healthy economy.
Many studies link economic slow down to reductions in GHG emissions. There is
an established relationship between economic growth and C02 emissions. As GDP
grows, C02 emissions increase (Obani and Gupta 2013). In Europe, a decrease in
electricity use led to a decrease in carbon emissions, although as mentioned above it had
a negative effect on the carbon market (Declercq et al 2012). For example, Spain's
carbon emissions dropped from 20.9 percent above 1990 levels at the beginning of the
economic crisis in 2008 to just 0.9 percent above 1990 levels in 2012 (Zafarilla et al.
2012). Japan (Rudolph and Kawakatsu 2012), New York City, and the Greater Toronto
(Kennedy et al. 2012) area all note decreases in carbon emissions resulting from
economic slow down.
Much of the work done on the intersecting topics of the current era of austerity
and the environment revolves around the idea of greening your way out of the Great
Recession. The logic in these arguments is as follows. The recession is really a blessing
in disguise. It provides a very good and rare opportunity to restructure the economies and
energy production systems of the West. With careful plan selection and government
support, new markets in green energy can be grown and both the recession and climate

change can be dealt with at the same time (Martinelli and Midttun 2012; Spies-Butcher
and Stilwell 2009).
Greening your way out can be accomplished through national and local action
(Monaghan 2010) and developments in industry, energy production, and other
externalities (Pena and Geels 2012). The United Nations states that it can take the form
of internalizing environmental externalities (such as costs associated with environmental
degradation, resource depletion, or climate change) within the economic order, linking
social, economic, and environmental goals, and the promulgation of a new
macroeconomic order that emphasizes sustainable development (Secretary General
2010). The European Commission (2011) agrees that internalizing environmental
externalities is the key to achieving this. They also stress investing in new green
technologies resulting in the creation of jobs in those sectors and promoting sustainable
consumption that should result in lifestyle and societal changes that improve the
environment. Creutiz et al. (2014) argued that the EU could design their energy
transitions set in the 20-20-20 initiative to maximize its social welfare and help European
economies recover more quickly by fostering economic growth, providing employment,
increasing energy security (of particular interest at the moment with heavy sanctions
being levied on the EU's main natural gas supplier, Russia), and building trust. They note
the difficulties that the member states in the geographic periphery face in implementation
of new renewable energy sources (RES) due to the budget constraints imposed by
austerity (Creutiz et al. 2014, 1025). Others argue that more state support for differing
schemes can help soften the effects of the Great Recession. Frondel et al. (2010) argued

that more support for the European wide tradable green certificates (TGC) market would
be the most effective way to green the way out of the recession. Others have argued
for the continued support for and integration of price premium models such as feed-in-
tariff (FIT) and feed-in-premium (FIP) (Fourquet 2013; Kitzing 2012)2.
As shown above, there is ample work on recession economics, the environment,
and social justice as well as the effects of austerity's cousin, the SAP, on the environment,
economy and society. These pieces are incredibly diverse and use methods ranging from
highly critical and contextual pieces that border on political philosophy to economic
modeling. There is a strong consensus in the two threads of thought represented (that the
recession and/or SAPs have a positive effect on the environment on the one hand and that
they have a negative effect on the other), but they have little in common. This is, in the
author's opinion, a good thing. The recession has barely run its course, if it is finished at
all. A lively debate amongst scholars should hopefully provide insights on the way
forward and how to handle a similar situation when the nest economic bust arrives.
It would appear that this issue has been examined from every angle. However,
there is something critical missing. There does not seem to be much, if any, work done
on the effects of the response to the recession, austerity itself, on the environment.
Furthermore, there is not any work that factors in the welfare state. Social justice as a
concept has appeared in the literature, but no real discussion of welfare structure or
systems and their implications on the effects of austerity, in environmental policy or other
areas, has surfaced. This study seeks to fill that gap.
2 Tradable green certificated (TGC) and feed-in-premium (FIP)/ feed-in-tariff (FIT) models are discussed
at length in the percentage of renewable energy analysis.

2.3 - Worlds of Welfare Capitalism
To operationalize the welfare state, I will use an adjusted typology of Gosta
Esping-Andersen's The Three Worlds of Welfare Capitalism. It was selected because of
its relatively simple methodology and striking results. In this section, I will briefly
describe each of his regimes, some of the criticisms of his work, and how I will address
them with the addition of a fourth regime.
2.3.1 Gosta Esping-Andersen's The Three Worlds of Welfare Capitalism
In his seminal work, The Three Worlds of Welfare Capitalism, Gosta Esping-
Andersen examined the welfare states of the then Western world and found that they
crystallize into three categories according to three primary criteria. The first of the
criteria is the decommodification level. Esping-Andersen defines decommodification as
the degree to which individuals, or families, can uphold a socially acceptable standard of
living independently of market participation (Esping-Andersen 1990, 37). It is a
measure of how exposed labor is to market forces. The second is the effect of the regime
on the structuring of the social order. They are all expected to have differing effects on
how and where cleavages in society are formed (Esping-Andersen 1990, 58). The third is
how the burden of providing welfare is distributed among the market, state, and family
(Esping-Andersen 1990, 80). In this section, I provide a brief overview of Esping-
Andersen's three regime types, criticisms of the work, and the addition of a fourth regime
type to help address some of those criticisms.
The first regime is called the Liberal or Anglo-Saxon regime and encompasses
most of the English speaking world. Esping-Andersen argues that this regime type is

characterized by means-tested assistance, modest universal transfers, or modest social-
insurance plans... (26). The liberal regime's benefits are meant for low-income state
dependents. Traditional liberal thought and norms have mitigated the call for social
justice, and benefits tend to be small and heavily associated with a social stigma. The
main function of the state in this capacity is seen as providing equality of minimum need.
As such, much of the welfare burden is transferred to the market.
Decommodification scores are lowest in this regime. Labor is almost fully
exposed to the volatility of the market. Collective rights, especially those of unions, are
weak. The emphasis of equality of minimum need has had an impact on the societal
structure of these states. It creates a deep cleavage between the very poor who depend on
the state for welfare and the upper and increasingly smaller middle classes dependent on
the market. This divide is reflected in the political arena. Esping-Andersen summarizes
this regime saying it,
...minimizes Decommodification-effects, effectively
contains the realm of social rights, and erects an order of
stratification that is a blend of relative equality of poverty
among welfare-state recipients, market differentiated
welfare among the majorities, and a class-political dualism
between the two. (1998, 27).
The second regime type is called the Social-Democratic or Nordic model. As the
name suggests, it encompasses the Scandinavian states of Norway, Sweden, Denmark
and Finland (since independence, Iceland is sometimes included as well). On the
opposite end of the spectrum from the Liberal model, the Social-democratic model
espouses equality of high standards rather than equality of minimum needs. The state,
therefore, plays a much more prominent role in this regime type. It takes direct

responsibility for the sick, young, old, and needy. Other traditional support structures for
welfare, the market and the family, are crowded out.
Decommodification scores are highest in this regime, meaning that labor is
relative insulated and independent from market forces, decommodification measures and
social rights are extended to encompass the middle as well as the working class. This has
resulted in a mix of highly de-commodifying and universaliStic programs (Esping-
Andersen 1990, 28). It should be noted that the primacy of universalistic programs in
this regime type does not mean that all receive equal benefits. They can differ across
spectra of society, and can often accommodate specific needs better than the Liberal
model. All of society pays into, and are covered by, the welfare regime, but benefits are
tailored to earning levels (Esping-Andersen 1990, 28). The universalistic nature of
welfare in the Social-Democratic model has led to a relatively low level of stratification.
In Esping-Andersen's view, one of the most important aspects of this regime is its
ability to marry welfare and work, which helps to solve on of the classic issues of a
universalistic system, free riding. He says,
[The social-democratic model] is at once genuinely
committed to a full-employment guarantee, and entirely
dependent on its attainment. On the one side, the right to
work has equal status with the right of income protection.
On the other side, the costs of maintaining a solidaristic,
universalistic, and de-commodifying welfare system means
that it must minimize social problems and maximize
revenue income. This is obviously best done with most
people working, and the fewest possible living off social
transfers. (Esping-Andersen 1990, 28)
Here is the classic Nordic feedback loop. The huge costs of maintaining such a robust
welfare state requires large revenues in taxes. Those revenues can only be collected if

there are high levels of employment. Therefore, the states are committed to full
employment. All benefit; all are dependent; and all will presumably feel obliged to
pay (Esping-Andersen 1990, 28).
The final of Esping-Andersen's regime types is the Conservative, Continental, or
corporatist-statist model. It is centered around core Europe, meaning Germany,
France, Austria, and Belgium. In his original analysis, Esping-Andersen included Italy in
this category as well. It occupies the middle ground between the Liberal and Social-
Democratic regimes. Like the Liberal regime, it rejects universalism. Like the Social-
Democratic regime, it allows for generous social rights. The state plays a large role in
providing welfare, but not at the levels of the Social-Democratic regime. It acts as a rule
setter, insurer, and mediator.
Decommodification scores for this regime are moderate, again landing in between
the Liberal and Social-Democratic regimes. Labor is somewhat insulated from the
movements of the market. Since the burden on the state is less that in the Social-
Democratic regime, this regime lacks the necessity to commit to full employment.
The Conservative regime also diverges form the other two systems in the way that
the welfare regime has influenced the structure of society. Firstly, it has preserved status
differentials, which gives the regime its corporatist label. Different social statuses,
including occupation, play a role in determining what level of benefits one receives. This
has its roots in the medieval guild system in which ones membership in a craftsman's
guild would guarantee some kind of benefits should illness, injury, or death strike. They
would also provide for retirement. Different occupations had different guilds and

different benefits afforded to them. The old guild system embraced hierarchy
(journeyman vs master) and differentiation (mason vs carpenter), but not necessarily
class (Esping-Andersen 1990, 39). This style of social structure has impacted the
Conservative regime today. The state takes much of the burden form the market, but, due
to ongoing status differentials, redistribution efforts are often not as successful as in the
Social-Democratic regime.
Secondly, the Church played a much more prominent role in the development of
the Conservative regime. The result has been the attempted preservation of the single
male breadwinner household. Programs targeted specifically at getting women in the
work force, like daycare and maternity benefits, are less than in the Social-democratic
regime, but more than the Liberal regime (Esping-Andersen 1990, 27).
2.3.2 - Criticisms
Being a landmark work on welfare states, Three Worlds has been, and still is,
hotly debated. Many criticisms that could potentially affect this study have been leveled
at it over its twenty-five years in publication. Critiques fall into three broad categories:
methodological issues, the gender neutrality of measures and analysis, and the number of
Some scholars have taken issue the Esping-Andersen's methods. For example,
Scruggs and Allen (2008) attempted to recreate Esping-Andersen's social stratification
tests and data. Their results are not exactly the same as in Three Worlds. Furthermore,
they apply the same tests to more recent data and find that there is significant change in
some regimes. This combined with earlier studies which called into question his

Decommodification scores (Scruggs and Allen 2006; Bambra 2006), raises questions on
whether the original methodology was sound and whether the results so striking. Also,
there have been some critiques on how he treated and ranked the border states of the
UK, Ireland, the Netherlands, and Switzerland, cases in which the state in question had
no strong indications for a particular regime.
The second major criticism revolves around the gender neutrality of many of
Esping-Andersen's measures, specifically Decommodification scores. His measures do
not incorporate any type of gender at all, failing to take into account the gendered
division of paid and unpaid labor or the position of women in the labor market. He is
also criticized for not giving the systematic attention to the family that he gave to the
market and state (Arts and Gelissen 2002).
The third criticism has to do with the number of regime types in his typology and
how they are arranged. As early as two years after Three Worlds was published,
Leibfried (1992) argued for the addition of a distinct Southern regime, a call echoed by
Ferrara (1996), and Bonoli (1997). All three used different methods and indicators and
all three call for a separate Southern regime. Their work combined provides a
convincing argument for the addition of a fourth regime type (Arts and Gelissen 2002).
In the original work, Australia and New Zealand are classified as part of the Liberal
regime. Some scholars argue for the creation of an Antipodean regime, citing differences
in inclusiveness and redistribution instruments (Castles and Mitchell 1993). Japan was
included in the original analysis as well. With the rise of South Korea, Hong King,
Taiwan, and Singapore, many scholars argued for the inclusion of a Confucian regime,

stemming from Confucian morals, characterized by, low levels of government
intervention and investment in social welfare, underdeveloped public service provision,
and the fundamental importance of the family and voluntary sector in providing social
safety nets. (Bambra2007, 1100).
Of the three criticisms, only one is pertinent to this paper. Methodological issues
could be concerning, but as Emmenger et al. (2015) show in a special edition of the
Journal of European Social Policy dedicated to the twenty-fifth anniversary of the
publication of Three Worlds, it is still an important and widely used typology today. It is
the basis for many studies, and its use continues to be justified. The gender critique is a
valid one, but out of the scope of this paper. Gender, often linked to the environment in
critical thought, is not a variable in this study, although a study incorporating it would
almost certainly bring insights valuable to the field. The addition of different regime
typologies could certainly weigh on this study. But, as this study focuses on Europe, the
Antipodean and Confucian regimes can be discounted as being beyond its scope. The
Southern regime, however, can not. To address this criticism, the Southern regime is
included as a part of this analysis.
2.3.3 - Southern Regime
The Southern regime is similar to the continental regime in many aspects. It has
similar levels of Decommodification with broad recognition of social rights. It envisions
a similar role for the state and the regime has worked to preserve status differentials. The
influence of the Church is apparent (Ferrera 2010).
While similar to the Conservative regime, the Southern regime has a few

characteristics that make it unique. First, many of the characteristics of the Conservative
regime are taken to extremes in the South (Bonoli 1997). The Church influenced welfare
state formation in the Conservative regime. Its influence is much greater in the South and
is reflected in family welfare policy. Status differentials are much deeper and more
pronounced, resulting in a clear insider/outsider cleavage. Second, the South has a much
heavier reliance on the family to provide welfare. Third is the establishment of universal
health care systems in the Social-Democratic style (Ferrera 1996). Finally, the Southern
regime has traditions of clientalism and patronage not present in the Conservative,
Liberal, or Social-Democratic regimes. The states in Southern Europe have long histories
of totalitarian rule. Italy, Spain, Portugal and Greece all experienced large patches of
authoritarian rule in the twentieth century. Mussolini, Franco, Salazar and the Greek
military junta left behind networks of patronage and clientalism (Ferrera 1996).
Table 1 Welfare State Typology
Liberal Democrat Conservative Southern
D ec omm odifi c ah on
State, Market, Family
Low High Moderate Moderate
Market State Mix Family
Class Universal Status Differentials Insider/ Outsi der Split
Societal Structure

To address how austerity affects the environment and if those effects are impacted
by the welfare state, several different methods were employed in a nesting style.
Beginning with a preliminary interrupted time series analysis, moving on to several
multivariate regression analyses, the methods become more precise with each iteration.
The interrupted time series was chosen to gauge overall correlation between the impact of
austerity on the environment and the welfare state. Multivariate analysis was employed
to more precisely measure the correlation established in the interrupted time series and
determine which aspects of which welfare states could account for the variation in
impact. This section begins with some notes and justification of sample selection.
3.1 - Notes on Sample Selection
Europe was selected as the sample for this study for several reasons. First, Europe
is comprised of several states with economies similar in structure and relative size and
fairness. It would seem imprudent and overly complicated to attempt to control for the
myriad of economic variables this represents if comparing economies of vastly different
composition and capacity. Second, the EU provides several instances of common
regulatory and legal frameworks, eliminating the need to control for those types of
variables as well, the most prominent two for the purposes of this paper being the Fiscal
Compact and 20-20-20 Initiatives. While there is room to make national legislation to
implement EU regulation, there is not room to make the regulations themselves. There
are also major incentives to keep in line with EU regulations, especially in regards to the

environment and the Fiscal Compact. Development of austerity policies and the EU's
capacity for environmental regulation are outlined in the next section.
3.1.1 - The European Fiscal Compact
To address what seem to be serious deficiencies in the Eurozone system, leaders
met to enact a new intergovernmental treaty, formally called the Treaty on Stability and
Governance in the Economic and Monetary Union, informally the European Fiscal
Compact. Although it is a de facto EU agreement, it does not originate from any EU
institution. It is an independent intergovernmental treaty that exists separately from EU
institutions. It only needed twelve of seventeen Eurozone members to pass it in order to
affect all of them. This differs substantially from the unanimity model under which the
EU normally operates in this area. The first attempt at this kind of fiscal integration was
held in the European Council, but failed when the UK exercised its veto.
The Compact was signed by all members of the EU except for the UK, the Czech
Republic (whose government recently made a pledge to sign on), and Croatia (who had
not yet acceded to the union at the time of passage). The main goal of the Compact is to
install common rules for fiscal policy, aimed at preventing another crisis like this most
recent one. It contains several different rules and provisions. The first two are
reassertions of principles from the Maastricht Treaty. The structural deficit of a signatory
sate cannot be higher than .5% of GDP and states with a debt to GDP ratio significantly
below 60% can have a deficit no larger than 1% of GDP. There are new provisions as
well. States must pass the treaty into national laws, preferably into their constitutions or
governing documents, creating automatic correction mechanisms should debt grow too

large. The Compact establishes a benchmark system for states that have a debt to GDP
ratio over 60%, stating that they must reduce that debt by one twentieth every fiscal year.
Furthermore, as a condition for eligibility for the European Stability Mechanism (ESM,
i.e. European based bailouts) states must pass all national level provisions in the
Compact. Finally, it establishes an enforcement mechanism or these rules. If a signatory
state exceeds its allowed deficit, does not reach its reduction benchmark, or does not pass
the national level laws, it can be fined in the European Court of Justice (ECJ) up to 1%
of GDP and the fine will be used to help fund the ESM.
3.1.2 - Environmental Regulation in the EU
The EU maintains one of the largest bodies of environmental regulations of any
international organization. Environmental regulation, like much of the regulations in the
EU, began under concerns that differing national environmental standards would result in
de facto trade barriers in the common market (Hildebrand 2005). Certain environmental
policies, such as the acceptable level of lead in gasoline, were enacted mostly out of
economic concerns. By the early 1970s, the EU (then the EEC, European Economic
Community) had begun to adopt true environmental regulations applicable to all member
states. While underlying market distortions were still a concern, more prominent were
the environmental social movements and ecological disasters of that era (Hildebrand
2005). During this era, because of the internal law making processes of the EU, states
could, in effect, cherry pick the environmental regulations that they wished to follow
(Day 2005).
The passing of the Single European Act (SEA) in 1986 placed EU environmental

regulation on much sounder legal footing, and altered the decision making process within
the EU to allow for less selective styles of lawmaking (Day 2005). It altered the
parameters for law passage in the Council of Ministers from unanimity to qualified
majority voting (QMV) and made the environment explicitly, rather than implicitly, under
the competencies of EU institutions. The next major EU treaty was the Maastricht
Treaty. It, like the SEA, did not explicitly set environmental goals, but reaffirmed the
EU's commitment to the environment and restructured the EU in such a way that
environmental issues could more easily be tackled by the community rather than single
national governments. It established the co-decision principle in which the European
Parliament (EP) now had a greater say in EU wide legislation with the ability to reject
non-unanimous Council decisions. This combined with the EP's more politically diverse
make up and generally more pro-environment stance, gave the EU greater control over
environmental policy (Sheldon 1998).
The 1999 Amsterdam Treaty also furthered the EU's commitment to the
environment and its ability to shape policy in that arena. It built upon the reforms of the
Maastricht treaty. It expended the EP's co-decision powers and placed greater emphasis
on environmental protection in the Commission. It also developed a concept of
sustainable development and called for greater integration of it into existing EU
regulations. In true EU fashion, however, many of these ideals came without pragmatic
enforcement mechanisms (Jordan 1998). The treaty of Nice followed quickly on the
heels of the Treaty of Amsterdam in 2001, and is generally seen as preparing the EU for
Eastern expansion. It made few, relatively minor changes to the Treaty of Amsterdam in

regards to the environment. Primarily, it extended the QMV to one other environmental
area and adjusted what counts as a qualified majority, making any QMV decision more
representative of the EU's population as a whole (Carter et al 2001). The most recent
structural treaty of the EU is the Treaty of Lisbon. It was written in the wake of the
failure of the Constitution of the EU and entails very few, if any, substantive changes to
the regulatory power of the EU over environmental matters beyond reaffirming the status
quo (Vedder 2010). The primary adjustment in the Treaty of Lisbon is the inclusion of
climate change into the existing treaty language (Lee 2008).
A recent example of the EU's regulatory power in the field of the environment are
the 20-20-20 initiatives. They set the targets of reducing greenhouse gas emissions by
20% from 1990 levels, raising the share of renewable energy by 20%, and improving
energy efficiency by 20%, all by the year 2020. To accomplish this, a collection of four
pieces of complimentary legislation were passed. The first strengthens the EU Emissions
Trading System (EU ETS), replacing individual national emissions caps with a single EU
wide one that will be ratcheted down incrementally. The next two measures set national
targets for non-EU ETS emissions reduction and renewable energy. The measures allow
for differentiation of targets between states according to their wealth and level of
economic development. The final measure creates a legal framework for the
environmentally safe capture and storage of carbon (European Commission 2014).
The examination of the regulatory power of the EU in the environmental arena is
useful for the purposes of this analysis because it places all cases under the same
regulatory framework. The Commission does have enforcement mechanisms for

environmental policy. It can take any violating member state to the European Court of
Justice (ECJ) for settlement. This has the dual effects of embarrassing non-complaint
governments and eventually resulting in fines that are both monetarily and politically
costly (European Commission 2014). It eliminates the need to control for differing
environmental regulatory structures across countries. For example, were Brazil to be
included in this study, their looser environmental regulations could change the effect of
austerity on environmental indicators. Establishing the EU's competency in this field
eliminates that need.
3.2 - Interrupted Time Series
3.2.1 Methodology
The preliminary analysis of the data begins with an interrupted time series.
Fifteen western European countries were selected as cases for analysis. Six dependent
variables were selected through a review of the literature and intuitive inferences on the
possible effects of austerity. They are greenhouse gas emissions, renewable energy,
sufficiency of protected habitat, environmental tax revenue, environmental protection
expenditure by the public sector, and environmental protection expenditure by industry.
Greenhouse gas emissions are measured as the Kyoto index. It takes emissions form any
year and expresses them as a percentage of emissions in 1990 (all Kyoto insides for 1990
equal 100). Renewable energy is expresses as the share of renewable energy in gross
final energy consumption. Biodiversity indicators are limited, and the sufficiency of
protected habitat was chosen for its uniformity of definition, consensus of acceptable
measurement, and availability of data. Environmental tax revenues are expressed as a

percentage of GDP and were selected because of their theoretical ties to the concept of
austerity, which involves changing taxes. Environmental protection expenditure by the
public sector is measured in percentage of GDP as well, and acts as a proxy for state
involvement in the environment. It also has theoretical ties to austerity and includes both
investment and current expenditures. The final dependent variable is environmental
protection expenditure by industry. It is measured the same way as environmental
protection expenditure by the public sector, but rather than government, it measures
expenditure by mining and quarrying, manufacturing, and energy and water supply
industries. All data were retrieved from the Eurostat database.
Austerity is the sole independent variable here and remains an independent
variable in all subsequent analyses. Although not all austerity measures are equal, some
can take deeper cuts or differing structures, a dichotomous measuree is still appropriate
for this study. The austerity measures enacted in Europe after the Great Recession, while
not exactly the same, were very similar. They all fit the definition of austerity developed
in the first section of the literature review. Austerity is a form of voluntary economic
deflation that involves enacting severe cuts in government spending, taxes, wages, and
prices, or a combination thereof, aimed at reducing government's budget deficits and
debt, and restoring competitiveness in financial markets. This definition, much like the
UN definition of genocide, involves both a practical component and an intent component.
Also like the UN definition of genocide, the intent component is most important. It does
not matter whether one hundred or one million are killed, if the actions fit the intent, they
are labeled as genocide. Similarly, the structure and severity of fiscal changes are not as

important as their intent. If the collective fiscal changes meet the intent requirements of
the definition, namely reducing government deficit and restoring financial
competitiveness, then they are labeled as austerity. The austerity data were compiled by
the author, drawing primarily on Alesina et al.'s Austerity in 2009-2013 (2014) and
various news articles. Descriptive statistics for all independent and dependent variables
are listed in table two.
In order to gauge the impact of austerity on the dependent variables, a quasi-
natural experiment methodology using an interrupted time series was devised. The
dependent variables are the regression coefficients. Austerity is the treatment or
independent variable. It is considered to be present beginning in the year austerity
measures were passed. The unit of analysis is the state/indicator. Two measurements
were taken. The data were arranged over time in a scatter plot and the ordinary least
squares (OLS) regression measured both pre and post austerity. The pre-austerity acts as
the control group and post austerity as the test group. The difference between the
regression coefficients was calculated (delta m) and its absolute value taken. All absolute
values of delta m were then averaged to gauge an overall impact of austerity on the
dependent variable measurements together. The formula is represented in figure one:
A in DVt + Am DV2.+... A m DV\
Figure 1

Table 2 Descriptive Statistics
VARIABLES (1) N (2) Mean (3) Stand. Dev (4) Min (5) Max
Austerity 240 0.350 0.478 0 1
Greenhouse Gas Emissions 367 104.2 14.21 71.78 153.9
Percentage of Renewables 160 17.52 16.81 0.900 65.50
Sufficiency of Protected Habitat 120 91.64 11.66 26 100
Environmental Tax Revenues 192 2.700 0.653 1.570 4.860
Environmental Protection Expenditure 147 0.620 0.267 0.230 1.580
Environmental Protection Expenditure (Industry) 100 0.389 0.184 0.120 1.240
Daycare Expenditure 316 0.689 0.543 0.00361 2.027
Unpaid Family Workers 351 156.8 216.1 0 977.4
Public Social Expenditure 400 23.99 4.216 12.40 35.50
Unemployment 307 0.797 0.111 0.510 1.090

Table 3 Interrupted Time-series Comparative Slope Changes3
Sufficiency of Environmental Environmental
Country Regime Percentage of Renewables Greenhouse Gas Emissions Protected habitat Environmental TaxRevenue Protection Expenditure Protection Expenditure, Industry Average Scaled Average
Greece S 0.990 5.829 9.000 0.306 ... 4.031 2.690
Italy S 1.230 2.999 7.900 0.152 0.025 0.068 2.062 1.316
Ireland L 0.390 5.088 8.600 0.007 ... 3.521 1.071
Spain S 0.220 8.653 3.800 0.029 0.029 0.030 2.127 0.969
Lm$mbourg c 0.490 3.229 1.500 0.013 0.088 ... 1.064 0.412
Mean ... ... ... ... ... ... ... ... 0.334
United Kingdom L 0.240 1.753 0.200 0.103 0.106 0.021 0.404 0.138
Austria C 0.800 1.547 4.200 0.070 0.044 0.010 1.112 0.109
Median ... ... ... ... ... 0.099
Belgium c 0.390 1.291 4.800 0.044 0.025 0.055 1.101 0.099
Denmark N 0.790 3.430 1.200 0.043 0.001 ... 1.093 0.092
Portugal S 0.590 2.364 3.700 0.048 0.029 0.021 1.125 0.066
Finland N 0.450 1.806 2.300 0.190 0.018 0.014 0.796 0.006
Germany C 0.110 0.273 7.500 0.054 0.018 0.024 1.330 -0.323
Netherlands c 0.150 0.377 2.500 0.101 0.049 0.006 0.531 -0.446
France c 0.080 1.417 2.800 0.052 0.010 0.872 -0.533
Norway N 0.150 0.586 ... 0.027 0.022 ... 0.196 -0.663
3 Scaled Average Determined by taking the mean of slope changes after they have been standardized (multiplied by internal mean and divided by standard of

3.2.2 - Results
The results are listed in Table 3. When Esping-Andersen's Three Worlds typology
is added, one can see how the impact of austerity measures is more pronounced in the
Southern regime. All but one are above the median of the scaled average, and make up
three of the five above the mean. Furthermore, all Social-Democratic regimes, fall below
the median and were not as highly impacted. The Conservative regime is scattered
throughout the middle, and those states were moderately impacted. The Liberal regime
straddles the mean and experienced a moderately heavy impact. In the original Three
Worlds analysis, the Liberal regime is composed mainly of former British colonies.
North America, Australia, and New Zealand make up the rest of the group, withthe
United States being the example of a typical Liberal regime. Ireland and the UK, along
with the Netherlands, however, are what Esping-Andersen describes as borderline.
They show strongly for no single regime, but strongest for the Liberal and Conservative
regimes respectively.
3.3 - Multivariate Linear Regression Analysis Methodology
The interrupted time series analysis in section 3.2 acts as a preliminary analysis
and shows some kind of correlation between the impact of austerity on the environment
and the structure of the welfare state. The analysis is relatively superficial, however, and
requires support. To that end, a multivariate linear regression using the generalized least
squares method with random effects (GLS RE) is utilized. A GLS model was chosen
rather than an ordinary least squares (OLS) model because the data used in this analysis
are cross-sectional time-series data. The GLS can control for data coming from the same

cluster (in this case states), allowing for analysis of variables across time within a cluster,
or across clusters and time. Where OLS might return a slightly negative relationship
between two variables, the GLS method can recognize that it could be a series of positive
relationships from different entities. A random effects rather than a fixed effects model
was selected because the data are highly heteroscedastic, meaning that variance from the
regression equation is not equal across all cases. The Breusch-Pagan Lagrangian
multiplier test returned a 0.000 p value, indicating that there are significant differences in
variance across countries. The Hausman test confirms that finding, further justifying the
use of the GLS RE method. Robust standard errors are reported because of the high level
of error correlation within states, but not across them. In this case, conventional standard
errors can result in misleading significance. All regression analyses in this study follow
this methodology from the results of their own Breusch-Pagan Lagrangian multiplier and
Hausman tests, and cluster internal error correlation.
The main argument of this thesis is that the welfare state changes austerity's
impact on the environment. To represent that interaction, the welfare-state, or some
aspect thereof, is an intervening variable. A normal, albeit simplified, argument is shown
in figure two. In it, a dependent variable is somehow influenced by an independent
variable, austerity in the case of this study. Figure three shows the same argument with
an intervening independent variable. The dependent variable is still affected by the first
independent variable, austerity, but that effect is altered by the second, the welfare state,
producing different outcomes from different values. To operationalize this concept, new
variables called interaction terms are generated by multiplying austerity by the

intervening variable. These new variables indicate how the effects of austerity are
changed by the welfare state. As with the GLS RE method, interaction terms are
employed in all regression models in this study.
Figure 2
Figure 3
3.4 - Regime Analysis
3.4.1 Methodology
In this analysis, the dependent variables remain the environmental indicators from
the previous analysis. They are continuous and measured on the state level by year. As
such, the unit of analysis is the state/year.
The presence of austerity remains as an independent variable and is coded
dichotomously with one equaling the presence of austerity and zero equaling the absence

of austerity. Welfare regime type is added as a second, intervening independent variable.
It is a nominal variable with four values coded as four separate dichotomous variables.
For example, the liberal regime variable is coded as one for all cases of the United
Kingdom and Ireland and zero for all other cases. Because the study endeavors to
measure the effects of austerity through the lens of the welfare state, interaction terms
were generated to represent the effects of both regime type and the presence of austerity.
The reference group selected for this study was the Conservative regime. It was
selected due to its relative normativity. It is the largest group in the sample. The
Conservative regime states, with one exception, fall in the middle two quartiles in the
interrupted time series, and the mean and median impacts are closest to those of the entire
sample. There is also theoretical justification for its use as a reference group. In the
Three Worlds typology, the Conservative regime is noted for moderate
decommodification scores (above Liberal, below Social-Democratic). It structures
society through occupational status differentials rather than the individual/universal
dichotomy represented by the Liberal and Social-Democratic regimes, respectively.
Finally, while the Liberal, Social-Democratic, and Southern regimes rely rather heavily
on the market, state, and family respectively, the Conservative regime has a more even
mix of all three.
3.4.2 - Results
The results of the analysis, listed in Table 4, are mixed. Greenhouse gas
emissions performed as theoretically expected. They have a highly significant, negative
relationship. Austerity can have severe detrimental effects on consumption and

production in the short and medium terms. These decreases are associated with
reductions in greenhouse gas emissions. The negative relationship between greenhouse
gas emissions and austerity alone is expected and verified. The results of the
regime/austerity interaction terms are also as expected, according to the interrupted time
series analysis. All effects are negative. The magnitude of the regression coefficients are
as predicted in the interrupted time series as well. The Social-Democratic regime's
interaction term was the smallest in magnitude, and the Southern regime's was the largest
with the Liberal regime in the middle.
The percentage of energy from renewables did not perform as theoretically
expected. Renewable energy programs tend to rely heavily on government support. With
the government's capacity to fund these projects being hampered, the expected
relationship between austerity and renewable energy is negative. The results, however,
show that the relationship is positive and significant. The Social-Democratic regime and
its interaction with austerity are positive and highly significant. The Southern regime's
interaction with austerity is also positive. The only negative relationship is with the
Liberal regime. It is not statistically significant, however.
Regime type does not seem to have a significant effect on the sufficiency of
protected habitat, whether interacting with austerity of not. Austerity itself has a
statistically significant positive relationship with the sufficiency of protected habitat
measurement. This lack of significance could be attributed to the measurement of the
sufficiency of protected habitat itself. Protected Habitat is a regulatory definition set
by the EU, and it could conceivably change meaning and interpretation. It could possibly

Table 4 GLS Regime Analysis (Continental Regime as Reference Group)
(1) (2) (3) (4) (5) (6) Environmental
Independent Variables Greenhouse Gas Emissions Percentage of Renewables Protected Habitat Environmental Taxes Environmental Protection Protection, Industry
Austerity -6.226*** 3.043*** 5.611 -0.161*** -0.0323 -0.0412*
(1.737) (0.675) (3.896) (0.0384) (0.0398) (0.0242)
SD Regime 3.153 29.60*** -0.169 0.729 -0.273 0.0427
(5.345) (9.313) (7.053) (0.471) (0.167) (0.0549)
Southern 29.66*** 2.625 3.694 -0.188 -0.222 0.130
Regime (8.039) (4.767) (5.049) (0.313) (0.214) (0.184)
Liberal 8.472 -5.982* 0.278 -0.128 -0.0418 -0.0527
Regime (14.65) (3.561) (4.608) (0.237) (0.160) (0.0548)
SD & -3.484 2.167* 4.819 -0.257 0.108** 0.0303
Austerity (3.726) (1.208) (8.113) (0.189) (0.0442) (0.0289)
Southern & -10.54*** 1.518* -6.736 0.0509 0.0305 -0.0322
Austerity (2.345) (0.862) (4.294) (0.172) (0.0445) (0.0371)
Liberal & -7 249*** -0.281 2.306 0.216*** 0.267*** -0.0354
Austerity (2.613) (0.790) (4.114) (0.0399) (0.0398) (0.0242)
Constant 98.90*** 8.544** 89.56*** 2.629*** 0.767*** 0.339***
(3.911) (3.529) (4.204) (0.234) (0.160) (0.0548)
N 207 160 120 192 147 100
R-Squared 0.48 0.63 0.05 0.26 0.16 0.08
Robust standard errors in parentheses; *** p<0.01, ** p<0.05, p<0.1

act independently, and would show no real relationship with other independent variables.
Environmental tax revenues produce interesting results. Austerity alone has a
negative and highly significant relationship with environmental tax revenues. This is as
theoretically expected. As noted in section 2.1.2, austerity can cause economic shrinkage
in the short and medium terms. A smaller economy would mean less government
revenue though taxes in general which would theorize a negative relationship between
austerity and environmental taxes.
The addition of regime type to the analysis of environmental tax revenue returns
some interesting results. The Social-Democratic regime has a positive relationship with
environmental tax revenue, when compared to the Conservative regime. It's interaction
term is significant and negative. The coefficient for the Social-Democratic regime alone,
however, is large enough to compensate for the negative coefficients of austerity and the
interaction term, meaning that a state in the Social-Democratic regime would experience
increases in environmental tax revenue regardless of austerity. The Liberal regime's
interaction term is significant and positive, but less than the negative regression
coefficient of austerity and the regime itself. Overall, environmental taxes in the Liberal
regime show a negative relationship (although the regime itself is not statistically
significant). The Southern regime shows no statistically significant relationships.
Public environmental protection expenditure shows unexpected results.
Theoretically closely linked to austerity, it should have a significant negative relationship.
It does not. It is the only dependent variable without a significant relationship to
austerity. It only has a significant, positive relationship with the interaction term for the

Liberal regime. This runs counter to theoretical expectations.
Environmental protection expenditure by industry shows a significant negative
relationship with austerity. This follows theoretically from the economic shrinkage
associated with it. Regime type seems to have no real impact on industrial environmental
protection expenditure.
The results from this multivariate linear regression analysis allows for further
inquiry into the relationship between austerity, the environment, and the welfare state and
the development of further testable hypotheses. The three dependent variables to be
tested are those with the high R-squared values in the regime analysis: GHG Emissions,
Percentage of Renewables, and Environmental Tax Revenue.
3.5 - Hypothesis One: Greenhouse Gas Emissions
If the welfare state is more universal in structuring society rather than promoting
deep cleavages, then it will emit higher levels of greenhouse gasses during austerity.
3.5.1 -Methodology
This hypothesis stems from the link between austerity and a decrease in private
demand and consumption. States in the Southern and Liberal regimes have larger
portions of the population that are more sensitive to the detrimental effects of austerity,
including unemployment and cuts to government programs. Social Democratic regime
members, in contrast, embrace the equality of high standards and have much less of the
population vulnerable to the detrimental effects of austerity. It would logically follow
that the Social-Democratic regime is more able to maintain higher consumption levels
through robust government assistance. The Southern and Liberal regimes, because of the

large portion of exposed population, would experience larger reductions in demand and
consumption, resulting in a larger decrease in greenhouse gas emissions.
A second multivariate regression analysis is employed to test this hypothesis. The
same measurement of greenhouse gas emissions, the Kyoto index, is used as the single
dependent variable. The same austerity variable form the previous analysis is used as an
independent variable as well. The next two independent variables are the amount spent
on daycare and home help services and the percentage of the labor force under
unemployment coverage. They were selected to represent the social order produced by
various welfare regime types.
To represent the clear insider/outsider split in the Southern regime, I have selected
the amount of money spent on daycare and home help services as a percentage of GDP.
The data were originally measured by the OECD in the Social Expenditure Statistics
database and complied by David Brady, Evelyne Huber, and John D. Stephens in the
Comparative Welfare States Data Set (2014). It was selected because two of the largest
outsider groups in Southern Europe today are women and youth. The amount spent on
daycare and home help services should reflect how much support the welfare state has for
assisting these outsiders to enter and remain in the labor market. With low levels of
support for daycare and home help services, one would expect a family member to stay
home and care for children or elderly family members, most likely the mother or an older
child, while the labor insider earns income. It is lower in the Southern and Liberal
regimes, moderate in the Conservative regime, and higher in the Social-Democratic

To represent the universality of the welfare state, unemployment coverage was
selected. It is defined as the percentage of the labor force insured for unemployment risk.
It is not the percentage of the labor force currently receiving benefits, but rather the
percentage that has the potential of receiving non-means tested, involuntary
unemployment insurance. The data are from the Comparative Welfare Entitlements Data
Set 2 compiled by Lyle Scruggs, Detlef Jahn, and Kati Kuitto (2014). This should
accurately represent the universality of a welfare state and is higher in Social-Democratic
regime than in all other regimes. As with the previous regression analysis, interaction
terms were generated to determine the effects of austerity and other independent variables
on each other and greenhouse gas emissions. Results are listed in Table 6.
3.5.2 - Results
Using the statistical software Stata, four separate models of this analysis the were
run because of the high levels of correlation between two interaction terms (IT3 & IT4)
and the independent variables, as shown in Table 5. The models differ in how many
variables are statistically significant, but there are commonalities in the regression
coefficients throughout all four.
There is a consistent positive relationship between unemployment coverage and
greenhouse gas emissions. As states become more universal in structure, the will produce
more greenhouse gas emissions. When austerity is added, this relationship only becomes
stronger. The coefficients in models one and three are negative, indicating that under
austerity conditions, as states become more universal, they emit fewer greenhouse gasses.
However, the final term in those models is positive. It indicates that as daycare

Table 5 Correlation Matrix for Greenhouse Gas Analysis
Austerity Unemployment Coverage Daycare Unemployment Coverage x Austerity (IT1) Daycare x Austerity (IT2) Unemployment Coverage x Daycare (IT3) Daycare x Unemployment Coverage x Austerity (IT4)
Austerity 1
Unemployment Coverage 0.0127 1
Daycare 0.0069 0.1499 1
Unemployment Coverage x Austerity (IT1) 0.988 0.0598 0.0149 1
Daycare x Austerity (IT2) 0.8516 0.0407 0.1543 0.8565 1
Unemployment Coverage x Daycare (IT3) 0.0124 0.3123 0.9808 0.0307 0.1512 1
Daycare x Unemployment Coverage 0.8612 0.0777 0.1444 0.8845 0.9897 0.1524 1
x Austerity (IT4)

Table 6
Greenhouse Gas Emissions Analysis
Independent Variables (1) Model 1 (2) Model 2 (3) Model 3 (4) Model 4
Austerity 7.176 (10.34) -10.87 (7.364) 4.974 (10.35) -14.62* (7.858)
Unemployment 12.00 (15.52) 13.55 (14.94) 29.66*** (8.624) 30.91*** (8.840)
Daycare -24.13** (9.402) -24.25** (9.525) -12.03*** (4.362) -11 93 *** (4.405)
Unemployment & Austerity (IT1) -23.32 (16.44) 1.844 (7.845) -19.87 (16.43) 7.527 (7.940)
Daycare & Austerity (IT2) -20.50 (16.29) 2.118 (1.675) -22.76 (16.45) 1.409 (1.439)
Unemployment & Daycare (IT3) 15.32 (12.09) 15.95 (12.05)
Unemployment & Daycare & Austerity (IT4) 30.86 (23.43) 33.05 (23.88)
Constant 108.5*** (15.00) 106.9*** (14.64) 94.58*** (11.69) 93 47*** (11.73)
N 145 145 145 145
R-Squared 0.17 0.16 0.13 0.13
Robust standard errors in parentheses
*** p<0.01, ** p<0.05, p<0.1

expenditure and unemployment coverage go up (both signs of a more universal welfare
state), greenhouse gas emissions will increase. It is also large enough to cancel out the
negative relationship of unemployment under austerity with greenhouse gas emissions.
Together, these terms show that under austerity, states with more universal welfare
structures will emit more greenhouse gasses.
The most important relationship in this model is the one between austerity, deep
social cleavages, and greenhouse gas emissions. In all models, the relationship between
deep social cleavages (represented by daycare expenditure) and greenhouse gas emissions
is negative, indicating that, without austerity, states that structure society around a deep
insider/outsider split produce more greenhouse gasses. A critical change occurs when
austerity is added to the mix. The relationship turns from negative to positive. In models
one and three the regression coefficients for the austerity/daycare interaction terms are
negative, but, as with unemployment coverage, the final term in those models pushes this
relationship to positive. This change in sign indicates that while austerity measures are in
place, states with an insider/outsider split begin to produce less greenhouse gas
Model four acts as a good summation of the other models. It is shows much more
clearly that under austerity the positive relationship between a universal welfare state and
greenhouse gasses is only intensified; the relationship between deep social cleavages and
greenhouse gas emissions changes under austerity. Those states that structure the welfare
state along an insider/outsider split emit less greenhouse gasses under austerity, and the
hypothesis begins to be verified.

There is a fly in the ointment, however. None of the models returned significant
interaction terms. Model four, which eliminated two interaction terms due to high levels
of correlation with other variables, shows two of the independent variables as significant.
Universalism and deep cleavages all seem to have some kind of important effect on
greenhouse gas emissions, but become less important when taken with austerity. As such,
the hypothesis can not be fully validated. There may be other aspects of the welfare
regime at play.
3.6 - Hypothesis Two: Percentage of Renewables
If a state uses a feed-in-premium or feed-in-tariff as its primary mechanism for
promotion of renewable energy, then the percentage of energy produced by renewables
will increase more rapidly than those that do not, regardless of welfare regime type.
3.6.1 Methodology
Some of the more interesting and counter intuitive results from the regime
analysis regard the relationship between the percentage of renewables, austerity, and the
welfare state. One would expect the share of renewable energy to go down when
austerity is enacted, as they are among the programs that rely most heavily on
government support. However, as shown in table four, austerity has a positive and
significant relationship with the share of renewables in all regimes except the liberal
regime, when compared to the reference group. This can be ascribed to attributes of the
primary mechanisms used to promote renewable energy in the vast majority of Europe,
the feed-in-premium and feed-in-tariff models.
Feed-in-premium (FIP) and feed-in-tariff (FIT) schemes are very similar, and are

often treated as subcategories of one another (Couture and Gagnon 2010). According to
Kitzing et al. feed-in-tariff schemes involve priority dispatches to eligible generation,
long-term perspective, and guaranteed prices. (194) The price can be determined for
either a fixed period of time or a predetermined amount of production. Early forms of
FIT schemes guaranteed prices for renewable energy generators. They would sell the
power generated from renewable sources to an obliged off-taker who would then
distribute the energy and the costs of the scheme to consumers. Producers were
completely isolated form the market. In its more recent form, FIT schemes changed from
a fixed price to an add on to market price. A target price is determined as the whole
benefit, and the producer is paid the difference between the market price and the target
price. The price and nature of the tariff are not uniform across all cases. It comes in
many different varieties including fixed, in which the tariff does not move except by
changing legislation or regulation, time dependent, in which the tariff varies from peak to
non peak hours, and target price, in which the tariff is an add on or reduction from the
market price to the attain the target price (Kitzing et al. 2012).
The main, and subtle, difference between FIT and FIP schemes is the nature of the
tariff or premium paid. In a FIT scheme, there is a target or fixed price that is always
achieved. In a FIP scheme, only the add on is paid. If the market price drops in a FIT
scheme, the tariff would increase to match the target price. In a FIP scheme, the premium
would not change. Producers and investors are more exposed to market forces under a
FIP scheme. FIPs, like FITs, are long term oriented, locking in rates for periods up to
twenty years (Kitzing et al 2012).

These schemes by themselves cannot explain the seemingly strange relationship
of austerity and renewable energy. There is a second piece of the puzzle, namely that
austerity has negative effects on energy consumption. This relationship is best illustrated
with a regression analysis. Austerity as defined previously, is the sole independent
variable. The dependent variable is gross inland energy consumption as defined by the
EU and calculated as primary production + recovered products + total imports +
variations of stocks total exports bunkers. As shown in Table 7, austerity correlates
with a significant decrease in energy consumption.
Table 7
Austerity and Energy Consumption
VARIABLES Energy Consumption
Austerity -5,255**
Constant 96,112***
N 224
R-Squared 0.001
Robust standard errors in parentheses
*** p<0.01, ** p<0.05, p<0.1
3.6.2 - Results
As austerity is enacted, energy consumption declines. Due to the long-term, fixed
nature of FIT and FIP schemes, they do not. The increase in the percentage of renewable
energy is more a function of a decrease in energy consumption resulting in a larger
percentage of renewable energy rather than an increase in actual renewable energy

outputs. This thought is corroborated by a second linear regression analysis. In it, the
same austerity variable remains as an independent variable, energy consumption as
defined above is added as a second, and an interaction term is generated and added as a
third. The dependent variable is the percentage of renewable energy from the regime
analysis. The results are listed in table eight and show that austerity still has a significant
positive relationship with the percentage of renewables. The analysis also shows that
there is a significant negative relationship with energy consumption, meaning that as
energy consumption decreases, the percentage produced by renewables will increase.
That relationship is magnified during times of austerity, as evidenced by the significant
negative relationship with the interaction term.
Table 8
Renewables, Austerity and Energy Consumption
VARIABLES (1) Percentage of Renewables
Austerity 4 047*** (0.661)
Energy Consumption -9.66e-05*** (3.23e-05)
Energy Consumption & Austerity (IT1) -8.52e-06** (4.26e-06)
Constant 25.24*** (5.533)
N 160
R-Squared 0.102
Robust standard errors in parentheses *** p<0.01, ** p<0.05, p<0.1

3.6.3 -The UK: Methodology
The above analysis goes far in explaining the counter intuitive results of the
regime analysis. There remains one outlier, the liberal regime. What is responsible for
returning this strange result? A closer examination of the data reveals two possible
causes. The first cause is the presence of a large outlier in the reference group. Second is
that the UK uses a market based system as its primary renewable energy promotion
In this data set, Austria is a significant outlier in the reference group for the
percentage of renewable energy variable. The mean for entire the reference group, the
Conservative regime including Austria, is 9.9; the mean for reference group without
Austria is 6.2; the mean for Austria alone is 28.48. Austria is clearly an outlier in this
variable, and could be clouding the results of the regression analysis.
The shapes of renewable energy promotion schemes in the Liberal regime could
account for the strange result as well. The liberal regime is the smallest group in the
regime analysis, counting only the UK and Ireland as members. Ireland's main renewable
energy support mechanism is the FIT/FIP model, like most of Europe. The UK, however,
still relies heavily on tradable green certificates (TGC). They do have a FIT model, but it
was only fully implemented in 2012. The certificate market is still very much active and
is expected to play a major role in renewable energy promotion until at least 2017
(Ragwitz et al. 2011). To test these two possible causes, another set of regression
equations was generated, eliminating Austria, Ireland, the UK, and combinations thereof
from the sample. Results are listed in Table 9.

Table 9 Percentage of Renewables Sample Limitation
(1) (2) (3) (4) (5) (6)
VARIABLES Model 1 Model 2 Model 3 Model 4 Model 5 Model 6
(Full Sample) (Less Austria) (Less Ireland) (Less UK) (Less Austria & Ireland) (Less Austria & UK)
Austerity 3.043*** 2.492*** 3.043*** 3.043*** 2.492*** 2.492***
(0.675) (0.511) (0.677) (0.677) (0.513) (0.513)
SD Regime 29.60*** 33.04*** 29.60*** 29.60*** 33.04*** 33.04***
(9.313) (8.775) (9.348) (9.347) (8.813) (8.813)
Southern 2.625 6.065* 2.625 2.625 6.065* 6.065*
Regime (4.767) (3.539) (4.785) (4.785) (3.555) (3.555)
Liberal -5.982* -2.541 -6.644* -5.364 -3.204** -1.924
Regime (3.561) (1.550) (3.542) (3.542) (1.480) (1.480)
SD & 2.167* 2.717** 2.166* 2.166* 2.717** 2.717**
Austerity (1.208) (1.128) (1.212) (1.212) (1.132) (1.132)
Southern & 1.518* 2.068*** 1.517* 1.517* 2.068*** 2.068***
Austerity (0.862) (0.742) (0.865) (0.865) (0.745) (0.745)
Liberal & -0.281 0.270 -0.843 0.257 -0.292 0.808
Austerity (0.790) (0.657) (0.677) (0.677) (0.513) (0.513)
Constant 8.544** 5.104*** 8.544** 8.544** 5.104*** 5.104***
(3.529) (1.474) (3.542) (3.542) (1.480) (1.480)
N 160 150 150 150 140 140
R-Squared 0.63 0.71 0.62 0.61 0.7 0.7
Robust standard errors in parentheses; *** p<0.01, ** p<0.05, p<0.1

3.6.4 The UK: Results
Model one is the same sample as the regime analysis. In model two, Austria was
eliminated from the sample. Model three eliminates Ireland, and model four the UK.
Model five eliminates Ireland and Austria, and model six eliminates Austria and the UK.
The Social-Democratic and Southern regimes maintain a positive relationship in all
models. The significance varies, but only slightly. The Liberal regime retains its
negative relationship with the percentage of renewables compared to the reference group
throughout all models. The main change occurs in the Liberal regime's interaction with
austerity. When the outlier is removed form the sample (model two), the Liberal regime's
relationship with the percentage of renewables under austerity changes from negative to
positive, suggesting that it is better off than the norm under austerity. However, when
Ireland, with its FIT scheme, is removed from the sample in models three and five, this
relationship returns to negative. When the UK is removed, in models four and six, the
relationship is again positive. These results suggest that the UK is responsible for the
negative relationship between the Liberal regime and the percentage of renewables under
austerity when compared to the reference group. It is important to note that this does not
mean that the percentage of renewables in the UK is necessarily going down, only that it
is increasing at a slower rate than the Conservative regime. The UK's renewable energy
promotion scheme can account for this difference.
The UK's market based renewable certificate program is called the Renewable
Obligation (RO) system. The RO system is a banded market based system in which
Renewable Obligation Certificates (ROCs) are issued to an energy producer at a set rate

per megawatt/hour. The rate varies by technology, which gives it the banded quality.
The rate can vary from 0.25 ROCs per megawatt/hour for some technologies to two
ROCs per megawatt/hour for others. The RO obliges energy producers to supply an
increasingly larger percentage of their energy from renewable sources. Targets are set for
the percentage of energy generated by renewables for each year, but they have ample
room to move. Energy producers can meet this obligation by turning in their ROCs,
paying a buy-out non-compliance price, or a combination of both. ROCs can be traded
at any time between two parties or bought at monthly auctions, and can be banked for a
period up to one year. For example, a ROC earned in the enforcement year 2011/2012
may be used to prove compliance in 2011/2012 or 2012/2013. The price is market
determined, has no minimum or maximum, and has steadily increased since 2002
(Ragwitz et al. 2011).
Because the RO is a market based system, and does not have a long-term, fixed
character, the UK does not receive the bonus that states with FIT and FIP schemes do
under a percentage measurement. It is a system that is much less insulated from market
forces. One might even argue that the RO is much less decommodified than a FIT/FIP
scheme, which one would expect in the highly commodified Liberal regime. Because of
the almost unique system in the UK, the hypothesis is largely verified.
3.7 - Hypothesis Three: Environmental Taxes
If a state relies more on the family rather than the state or market for welfare, then
its environmental taxes will be more affected by austerity.
Environmental taxes have a theoretical tie to austerity. Austerity measures often

have the direct effect of cutting taxes in an effort to stimulate growth in the economy by
putting more money back in the hands of consumers. Furthermore, short-term costs of
austerity can affect taxes through reducing the size of the economy as a whole. Overall,
one would expect taxes of all sorts, including environmental, to decrease during austerity.
How does the structure of the welfare state affect these cuts? If the welfare system relies
more on the state, then environmental taxes should not be as affected by austerity. That is
not to say that they will not be affected at all, only that the magnitude of that change will
be smaller. A large, state based welfare system requires high levels of taxes to support it,
regardless of the state of the economy. These can come in all forms from simple income
and payroll taxes to complicated pay-as-you-go transfer systems. Simply, countries with
state based welfare systems have more options when it comes to finding revenue and
balancing the budget. It should stand to reason, then, that environmental taxes would not
be reduced by as large amount as in other countries because the overall tax cuts can be
spread around to other types of taxes.
3.7.1 Methodology
Testing this hypothesis will follow the same methodology as the greenhouse gas
emissions section, a multivariate regression model. The dependent variable is
environmental taxes defined in the regime analysis. There are three independent
variables in this analysis. The first independent variable remains, as always, austerity.
The next two independent variables represent reliance on the state, market, and family to
provide social welfare. Total social expenditure by the public sector as a percentage of
GDP, as calculated and reported by the OECD in its Social Expenditure Statistics

database, represents the state/market dichotomy. If a state spends a larger percentage of
its GDP on social expenditure, it is more state oriented. If it spends less, it is more
market oriented. This variable is highest in the Social-Democratic regime and lowest in
the Liberal regime. The number of unpaid family workers represents reliance on the
family. It is measured in thousands of workers and is highest in the Southern regime and
lowest in the Social-Democratic regime. The data used were measured by the OECD in
the Employment and Labor Force Statistics database and compiled in the Comparative
Welfare States Data Set (Brady et al. 2014). As in previous analyses, interaction terms
are generated to determine the effects of multiple, intervening variables.
3.7.2 - Results
The results of the analysis by and large confirm the hypothesis. The relationship
between austerity and environmental taxes, although not statistically significant, is
negative, indicating that environmental taxes decrease during austerity as theoretically
predicted and shown in the regime analysis. It is also larger by far than any other
coefficient in the equation. This suggests that environmental taxes as a percentage of
GDP will decrease during times of austerity, regardless of other intervening variables.
Public social expenditure shows a significant positive relationship. This is also
theoretically expected. Larger social expenditure requires higher taxes. The
significant,positive relationship of unpaid family workers and environmental taxes is
interesting, but not surprising. The only instance of an expected negative relationship
would be in cases of market reliance, which is validated by the coefficient of public
expenditure. Just as environmental taxes increase with public social expenditure, they

Table 10
Environmental Tax Revenue
VARIABLES (1) Environmental Tax Revenue
Austerity -0.107 (0.558)
Unpaid Family Workers 0.000931*** (0.000303)
Public Social Expenditure 0.0236 (0.0178)
Unpaid Family Workers & Austerity (IT1) 0.00780** (0.00357)
Public Social Expenditure & Austerity (IT2) -0.00811 (0.0224)
Unpaid Family Workers & Public Social Expenditure & Austerity (IT3) -0.000246* (0.000137)
Constant 2.074*** (0.407)
N 176
Number of groups 16
Robust standard errors in parentheses
*** p<0.01, ** p<0.05, p<0.1
will decrease with it as well. Market based welfare systems do not require as high tax
The interaction terms in this analysis show the differing effects of austerity on
different welfare state systems. At issue for this hypothesis is the size of the interaction
term coefficients relative to their constituent parts. Since both include austerity, it can be

discounted. Therefore, the main relationship of interest is the size of the coefficients of
the interaction terms relative to the size of the coefficients for the state/market/family
variable that was used to generate it. The public social expenditure/austerity interaction
term's coefficient, while larger absolutely, is smaller relative to the coefficient for just
social expenditure that that of unpaid family workers. It is approximately 26% of the
original coefficient. The unpaid family worker/austerity coefficient, however, is
approximately 226% the size of the original. Environmental taxes in states with family
oriented welfare systems are clearly more affected than others. The hypothesis is

This study, like all others in political science, is far from perfect. From a review
of the literature, I have generated a list of three possible criticisms of this study. The first
is the lack of any type of political or political party variable. The second is the absence of
public opinion from the analysis. Third is the difficulty in separating the effects of
austerity from the effects of the recession itself. I will attempt to address these criticisms
in this section.
Much of the literature in environmental policy involves some kind of political
component, be it the strength or presence of a green party, path dependency for policy
making, or something else. Furthermore, Esping-Andersen uses political arguments to
account for the developing of the different worlds of welfare capitalism. The lack of a
variable of this type is conspicuous, but the decision was made consciously. It comes
down to the scope of the study. Its purpose is not to determine how or why certain
policies were put into place (austerity, for example), but rather the effects of those
policies after they were enacted. A political variable would certainly add another layer to
the line of thought begun in this study, but should be explored in another work.
Public opinion is mentioned often in pieces about austerity and environmental
policy as well. It was not included primarily for the same reason that a political variable
was not included. It is beyond the scope of this study. Additionally, austerity measures
do not seem to respond to public opinion very well. In spite of several governments to
falling, mass protests in Brussels, and riots on the streets of Athens nothing changed or

stopped austerity's march across Europe.
The final and most valid of these criticisms is the difficulty in isolating austerity
from the Great Recession in which it took place. Which makes the patient sicker, the
cancer or the chemotherapy? There is a brief time in which Europe was experiencing
recession without austerity, but it is just not long enough to draw reasonable conclusions.
I have attempted to compensate for this by including Sweden, which enacted strict deficit
reduction measures in the mid-1990s and early 2000s in response to their own housing
crisis, as a control. It is the only country in Western Europe that did not enact austerity
measures in response to this crisis. They make for a poor control for this study, however,
because the welfare regime in Sweden is highly Social-Democratic and clearly not the

A healthy environment is a public good. The state, therefore, has an obligation to
ensure a healthy environment, just as it has an obligation to ensure defense from foreign
invasion and protection of basic human rights. And, just as the state requires defense
funding or funding for roads and public works, it requires some kind of funding to
promote a healthy environment. When a state's funding is cut, it should have an effect on
the health of the environment. The effect could be large or small. Some factors that
could amplify or dampen the effects of changes in fiscal policy on the environment are
the structures of society and markets. Others are previous spending obligations. In the
case of Europe, the welfare state helps to shape both.
This study has argued and presented evidence that austerity does have an effect on
the environment and, in some cases, that the effect is mitigated or amplified according to
the structure of the welfare state. The term austerity is vague at best, and by fleshing
out this idea, its intellectual roots, its goals, and its mechanisms, the study helps to
cultivate a unified definition. It also fills a niche that seems to be missing in the existing
literature. There is a large body of work on the effects of SAPs on the environment.
They conclude that the overall effect is negative. There are also ample studies done on
the effects of the recession on the environment. They split into two primary camps. The
first argues that a state can protect the economy or the environment, not both. The
recession brought on a credit crunch that makes investment in the green economy
difficult, a fact compounded by austerity measures. The second sees the recession as a

blessing in disguise; a chance to reform and restructure the economy in a more
environmentally friendly way, to green out of the recession. But there seems to be very
little done on the effects of the response to the recession on the environment. There does
not seem to be anything that uses the welfare state as an intervening variable. Therefore,
this study does have something to contribute to the academy at large.
Overall, this study has gone far to prove that the welfare state does change how
austerity affects the environment. Welfare states that are more universal in nature and
rely less on the market show less severe effects of austerity on the environment. Using
mixed methods, it has demonstrated that greenhouse gas emissions and environmental
taxes have differing rates of change in different welfare regimes, and those changes are
related to certain structural attributes of welfare states. It has also shown that the
percentage of renewable energy, while not directly responsive to the welfare state, is
responsive to a state/market dichotomy, one aspect of a welfare state. Renewable energy
promotion schemes that rely on the market are more susceptible to the changes brought
about by austerity.
The results of this study raise more questions on the effects of austerity and open
up new lines for future research. It shows that three policy areas, fiscal, environmental,
and social, interact in ways previously unstudied. Firstly, it has implications for fiscal
policy. Austerity has had broad reaching effects on areas traditionally not associated with
a change in fiscal policy. It supports the argument that fiscal policy in general, and
austerity in particular, has an ability to effect change in a very wide array of policy areas.
These changes have the possibility of being unintentional and undesired. Secondly, this

study shows that both environmental policy and outcomes are not made in a vacuum.
They are both vulnerable to changes in the world and society. With the environment
taking an ever larger role in shaping domestic and international agendas, this fact should
be at the forefront. Thirdly, this study helps expand knowledge of the welfare state. The
environmental indicators tested responded to the differentiation of the Southern regime
from the Continental regime in both the insider-outsider split/status differential and the
state-market-family mix criteria. The sharp differences of the impact of austerity on the
environment between the Southern and Continental Europe support arguments for
inclusion of a Southern regime that is separate and distinct from the Conservative regime
in welfare state typology. Furthermore, while it is well known that the welfare
apparatus can have deep effects on society and vice versa, it is unclear what kind of
effects it can have in other areas of the public sphere. Welfare structure can change
outcomes of fiscal policy in areas conventionally beyond the reach of either, and should
be taken into account when forming the latter. In short, this study shows how deep the
linkages between fiscal, environmental, and social policy run and how they can affect one
The results, methods, and implications of this study can be employed for analysis
in other works. The use of the welfare state as an intervening variable is relatively novel
can be applied to many other questions. For example, this study could be examined in
the opposite causal direction. Do certain welfare regimes enact austerity more often than
others? Are certain welfare regimes more likely to value community goods, like the
environment? Implications are not limited to fiscal and environmental policy. For

instance, how might the welfare state affect immigration policy and patterns both under
austerity and in times of economic growth? How might the welfare apparatus affect
public or governmental support for large international trade deals, like the Transatlantic
Trade and Investment Partnership or the Trans Pacific Partnership? If a link is found, it
could further the argument for the inclusion of the Antipodean and Confucian regimes in
welfare state typology. Furthermore, the use of the welfare state as an intervening
variable can be applied to constructivist questions. Could differences in the welfare
structures of Europe help account for differing levels of support for a pan-European
identity? Similarly, does it play a role in the rise of far-right nationalist parties?
This study also raises questions regarding the ongoing European integration
project. The existing EU framework was a roadblock in implementing standardized
austerity rules. So the leaders of Europe went around it. In classic liberal-
intergovernmental style, they negotiated a separate treaty independent of the EU. The
difficulties and backlash encountered by European leaders in implementing austerity
could lead to a change in the governance of the EU. Perhaps it could serve to weaken the
Council and Commission and strengthen the European Parliament. Perhaps it could serve
to weaken the EU as a whole and devolve more powers back to member states.
Another interesting implication of this study for European integration is the
competing methods of integration embodied by austerity as a liberal-intergovernmental,
top-down process on the one hand, and renewable energy promotion policy as a social
constructivism or lesson drawing, bottom up process on the other. It is relatively clear
which is more popular. What is not clear is which is more effective.

It could be argued that the results of this study show that austerity is good for the
environment. The recession and its response both come with silver linings. Greenhouse
gas emissions go down and renewable energy goes up, all while lowering taxes and
spending. This is misleading. Austerity is good for the environment, to continue the
medical metaphor, in the same way that chemotherapy is good for weight loss. It is just a
side effect that is not necessarily positive and will most likely not last. The massive
structural changes that have occurred in the new age of permanent austerity, however, are
likely to have long lasting effects. It represents a normative shift in the way Europe
fiscally operates. No longer is it acceptable to deficit spend during economic hardships.
It is not hard to envision the gutting of the welfare state in the name of a balanced
checkbook and unbridled economic growth. That is something that neither should be
desired nor sought.

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