Can Supranational Infrastructure Regulation Compensate for National Institutional Weaknesses?

Infrastructure regulation has traditionally been conceived as a national or local policy. The increased scope for international trade in infrastructure services, observed in the last 20 years, has induced the case for their regulation at a supranational level. This is because, when regulated services cross borders, local regulatory decisions have non-local impacts. For instance, when Spain decided to stop subsidizing renewable energies, the price of electricity in France increased. When Belgium, France or Germany closes its nuclear plants, it impacts the electricity markets in many other countries. More broadly, without coordination, differences in the national regulation of infrastructure services may alter comparative advantages and risks allocation across countries and result in production and distribution location arbitrations (e.g., Crampes [2014] or Albrecht [2014] in the context of the EU energy policies). This can penalize both users and producers, as already pointed out in the fiscal federalism literature on tax or environmental competition (e.g., Oates [2005]). Differences in national regulation can also reduce the incentive for new cross-border investments, a major issue at a time when concerns for climate change are leading to major transformations in the nature and composition of the infrastructure capital stock.