Does Renewable Energy Require Endless Subsidies?

Michael Giberson

A visit to the website of the Renewable Energy Policy Project turned up a link to this article by REPP’s executive director, George Sterzinger, urging that federal tax credits for certain renewable energy technologies be made permanent. Sterzinger complains that it is hard for the renewable energy industry to plan for the long term and efficiently invest for the future when the Production Tax Credit is renewed for only one or two years at a time. According to Sterzinger a permanent tax credit could reduce carbon emissions, “seems to provide at least some benefits to the consumers of those states??? that take supportive action, and would provide a boon to the renewables industry.

Sterzinger suggests a variety of ends for which policies like the production tax credit and state renewable energy portfolio standards are supposed to be the means. Unfortunately, there are a number of fairly basic economic principles available to assess these tax and mandate policies, and these policies don’t make the grade. A presentation [pdf] by Paul Joskow summarized the main point in reference to renewable energy portfolio standards, and similar points apply to the production tax credit. Not only are these not “first best” policies, economically speaking, they are not “second best” policies either. (At least in the case of the production tax credit, the subsidy is less hidden.) I don’t find a text online by Joskow making the same points, but if you know of one please send me an email.

In REPP’s “renewable portfolio standards??? map, above, the yellow states have renewable energy mandates, the red states have renewable energy goals, and the green states have neither. If Sterzinger’s arguments are the best the industry can do, I say “let’s go green!???