Green Subsidies and Local Transitions: Evidence from Energy Communities

This paper studies the effectiveness and incidence of the renewable energy Investment and Production Tax Credits. I leverage new geographical variation in these credits, introduced by the Inflation Reduction Act, to test whether renewable energy credits had real economic impacts. Communities with greater tax credits accrued 33% more renewable energy capital and produced 31% more renewable energy compared to similar counties. This suggests elasticities of 1.62 and 6.11 for the Investment and Production Tax Credits respectively. I augment these results using an understudied dataset on planned investment to disentangle preplanned from additional projects. Accounting for inframarginal investment significantly reduces the Investment Tax Credit's investment elasticity to 0.6. After characterizing the supply side responses to these renewable tax credits, I document a new political feedback loop between increased incentives and support for renewable energy policies. Areas with greater tax incentives experienced jumps in support for renewable energy policies, contrary to the Not In My Backyard narrative. Heterogeneity in political responses suggests that the Investment and Production Tax Credits garnered support through two channels: 1) labor market spillovers, with construction wages increasing by 7% in areas with greater tax incentives, and 2) public goods spillovers, with parents across party lines increasing support for renewable energy by 13%.