Highly subsidized solar power plants have been producing a lot of power in sunny southern Spain. The hope of this project was to replace dirty coal power with clean, renewable solar power. The project recently took a heavy hit when Spanish government officials came to the conclusion that many of these power plants would have to be subsidized indefinitely. As a result funding was abruptly cut and a cap was placed on solar power plant construction.
This is a good example of government subsidies moving an industry out of equilibrium. If the government subsidies had equaled the environmental costs of coal power generation as perceived by the Spanish public, then the value of the externalities would still be paid through private means in a typical Coasean scenario making the “green” option viable with or without government help. The problem of the government subsidies is the governments have a hard time judging the true cost of an externality thus they often over of under subsidize or over subsidize projects that could be taken care of in the market.