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Investment versus Output Subsidies: Implications of Alternative Incentives for Wind Energy

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  • Aldy, Joseph

    (Harvard University)

  • Gerarden, Todd

    (Harvard University)

  • Sweeney, Richard

    (Boston College)

Abstract

This paper examines the choice between subsidizing investment or output to promote socially desirable production. We exploit a natural experiment in which wind farm developers could choose an investment or output subsidy to estimate the impact of these instruments on productivity. Using regression discontinuity and matching estimators, we find that wind farms claiming the investment subsidy produced 10 to 11 percent less power than wind farms claiming the output subsidy, and that this effect reflects subsidy incentives rather than selection. The introduction of investment subsidies caused the Federal government to spend 12 percent more per unit of output from wind farms.

Suggested Citation

  • Aldy, Joseph & Gerarden, Todd & Sweeney, Richard, 2018. "Investment versus Output Subsidies: Implications of Alternative Incentives for Wind Energy," Working Paper Series rwp18-012, Harvard University, John F. Kennedy School of Government.
    • Handle: RePEc:ecl:harjfk:rwp18-012
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    2. Wu, Ting & Yang, Shuwang & Tan, Jingjing, 2020. "Impacts of government R&D subsidies on venture capital and renewable energy investment -- an empirical study in China," Resources Policy, Elsevier, vol. 68(C).
    3. Bianchi, Mattia & Murtinu, Samuele & Scalera, Vittoria G., 2019. "R&D Subsidies as Dual Signals in Technological Collaborations," Research Policy, Elsevier, vol. 48(9), pages 1-1.
    4. Iwona Bąk & Anna Spoz & Magdalena Zioło & Marek Dylewski, 2021. "Dynamic Analysis of the Similarity of Objects in Research on the Use of Renewable Energy Resources in European Union Countries," Energies, MDPI, vol. 14(13), pages 1-24, July.
    5. Kalouptsidi, Myrto & Barwick, Panle Jia & Zahur, Nahim Bin, 2019. "China’s Industrial Policy: an Empirical Evaluation," CEPR Discussion Papers 13889, C.E.P.R. Discussion Papers.
    6. Lee, Jonathan M. & Howard, Gregory, 2021. "The impact of technical efficiency, innovation, and climate policy on the economic viability of renewable electricity generation," Energy Economics, Elsevier, vol. 100(C).
    7. Beaudoin, Justin & Chen, Yuan & Heres, David R. & Kheiravar, Khaled H. & Lade, Gabriel E. & Yi, Fujin & Zhang, Wei & Lin Lawell, C.-Y. Cynthia, 2018. "Environmental Policies in the Transportation Sector: Taxes, Subsidies, Mandates, Restrictions, and Investment," ISU General Staff Papers 201808150700001050, Iowa State University, Department of Economics.
    8. Panle Jia Barwick & Myrto Kalouptsidi & Nahim Bin Zahur, 2019. "China’s Industrial Policy: an Empirical Evaluation," NBER Working Papers 26075, National Bureau of Economic Research, Inc.

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    More about this item

    JEL classification:

    • 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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