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Toward an optimal U.S. solar photovoltaic subsidy

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  • Liu, Shen
  • Colson, Gregory
  • Wetzstein, Michael

Abstract

An analytical framework for assessing the optimal solar energy subsidy is developed and estimated, which takes into account the environment, health, employment, and electricity accessibility benefits. Results indicate that an optimal subsidy is positively affected by the marginal external benefit. However, this effect is mitigated by the elasticity of demand for conventional electricity and elasticity of supply for solar electricity with respect to the solar subsidy. One result indicates when the elasticity of demand is negative, the more responsive fossil energy is to a solar energy subsidy, the higher is the marginal external benefit. Calibrating the model using published elasticities yields estimates of the optimal solar energy subsidy equal to approximately $0.02 per kilowatt hour when employment effects are omitted. The estimated optimal subsidy is in line with many current state feed-in-tariff rates, giving support to these initiatives aimed at fostering solar energy production.

Suggested Citation

  • Liu, Shen & Colson, Gregory & Wetzstein, Michael, 2015. "Toward an optimal U.S. solar photovoltaic subsidy," 2015 Annual Meeting, January 31-February 3, 2015, Atlanta, Georgia 196806, Southern Agricultural Economics Association.
    • Handle: RePEc:ags:saea15:196806
    DOI: 10.22004/ag.econ.196806
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    2. Zeng, Yongchao & Shi, Yingying & Shahbaz, Muhammad & Liu, Qin, 2024. "Scenario-based policy representative exploration: A novel approach to analyzing policy portfolios and its application to low-carbon energy diffusion," Energy, Elsevier, vol. 296(C).
    3. Bhagyashree Katare & H. Holly Wang & Jonathan Lawing & Na Hao & Timothy Park & Michael Wetzstein, 2020. "Toward Optimal Meat Consumption," American Journal of Agricultural Economics, John Wiley & Sons, vol. 102(2), pages 662-680, March.
    4. Lin, Boqiang & Okyere, Michael Adu, 2022. "Are people energy poor because of their prosocial behavior? Evidence from Ghana," Energy, Elsevier, vol. 239(PE).
    5. Zhao, Xuefeng & Li, Xin & Liu, Tianyuan & Shen, Guibin, 2024. "How photovoltaic industry policies foster the development of silicon solar cell manufacturing technology: Based on Self-attention mechanism," Energy, Elsevier, vol. 308(C).
    6. Mahn, Daniel & Best, Rohan & Wang, Cong & Abiona, Olukorede, 2025. "Equitable subsidy amounts for upfront energy costs in developing countries," Energy Economics, Elsevier, vol. 150(C).
    7. Krumm, Alexandra & Süsser, Diana & Blechinger, Philipp, 2022. "Modelling social aspects of the energy transition: What is the current representation of social factors in energy models?," Energy, Elsevier, vol. 239(PA).

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    Keywords

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    JEL classification:

    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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