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Optimal Subsidies for Residential Solar

Author

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  • Mark Colas
  • Emmett Saulnier

Abstract

We study the optimal design of spatially-differentiated subsidies for residential solar panels. We build a structural model of solar panel demand and electricity production across the US and estimate the model by combining 1) remotely sensed data on residential solar panels, 2) power-plant-level data on hourly production and emissions, and 3) a state-of-the-art air pollution model. The current subsidies lead to severe spatial misallocation. The optimal cost-neutral reform generates a 6-11% increase in the environmental benefits of residential solar panels. National funding for subsidies under the current system exceeds the unconstrained optimum by over ten-fold.

Suggested Citation

  • Mark Colas & Emmett Saulnier, 2023. "Optimal Subsidies for Residential Solar," CESifo Working Paper Series 10446, CESifo.
    • Handle: RePEc:ces:ceswps:_10446
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp10446.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    rooftop solar; optimal taxation; renewable energy;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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