In this article, we chose renewable energy subsidies in the United States as the country for reference, because it is one of the most funded countries to the development of renewable energy. The United States currently provide a significant subsidy to solar energy development. Largely through the investment tax credit. This tax credit is of course politically controversial. With some seeing it as a necessary step to fight global warming, and others have seen it as a distortion of the free market. Let’s take a look at some of the pros and cons of continuing to subsidize solar energy.
Pros of renewable energy subsidies
Helps to reduce global warming
The largest pro is obviously that solar power helps reduce global warming. By deploying solar, we tend to move from dirty sources of fossil fuels like coal, oil, natural gas to this clean renewable form of power and thus reduce the amount of carbon dioxide we emit into the air. It is incredibly important that we continue to do this. To prevent some of the devastations that global warming will bring if it goes unabated. Providing a direct subsidy to solar energy helps it deploy at a faster rate than it would otherwise.
Counteract subsidies that fossil fuel companies get
Another benefit of solar energy subsidies is that it helps to counteract subsidies that fossil fuel companies get. Fossil fuel companies receive and have received for a long time various forms of subsidies ranging from tax credits to environmental cleanup that they don’t pay for. Solar cannot reasonably be expected to compete against this without any sort of subsidy of its own, and even if you eliminated all subsidies of fossil fuels today. The long history of subsidizing fossil fuels would still give it an edge for several years over solar energy.
Accelerate the growth of solar and reduce the initial cost
Another big benefit of subsidies is that it helps to accelerate the growth of solar and get it further down its cost curve. Solar has come down in price enormously over the last few years. And will likely continue to drop in price in the next few years as well. Subsides have and will continue to help accelerate the growth of solar by moving it through the more expensive part of its research and development stage. And allowing for demand to grow as well. To bring in the cost savings of economies of scale.
Create new employment opportunities
Subsidizing solar helps to create jobs in the green economy. Solar jobs along with wind and other renewable energies are some of the fastest-growing jobs in the United States today. Subsidizing these industries has helped have created some of those jobs and will continue to boost job growth into the future.
You may also like to read: The Economics of Renewable Energy
Cons of renewable energy subsidies
Distort the free market
One of the biggest problems people see with this is that it distorts the free market. A lot of people believe that free markets tend to create better results than government-run or promoted industries. By providing a big direct subsidy, you are substantially changing the dynamic of the market. That said of course because of subsidies to other companies including fossil fuel companies, it’s harder to argue that there has been a long-standing free market. As it relates to the American energy industry.
Have to afford a considerable tax amount
Another big con is that a cost taxpayers a huge amount of money. All of these subsidies are paid by the taxpayers, and solar has received billions of dollars in public money that could have been spent in other areas or sent back to the taxpayers in the form of a tax reduction. And any benefits it brings must be weighed against this cost.
Perhaps the biggest problem with solar energy subsidies is that they are not the most efficient solution to global warming. A carbon tax would be much more efficient than indirect subsidies as it would penalize fossil fuel emissions. Thus helping spur investment in renewable energies. But it would also still be relatively market-based and would allow for any alternative power source to be developed that was carbon-free. Without having to have the government specifically pick and choose which alternative energies are worth something.
We see a carbon tax would also provide more benefits to the poor, especially when combined with a dividend probe as well. Too often solar subsidies only bring down the cost enough for middle and upper-class Americans to buy solar. And thus the poor receive no direct benefit from it. But with a carbon tax and dividend system, the poor would tend to get more money back from the carbon tax than they spend on energy as they tend to use less energy than the wealthy as they have smaller homes and tend not to drive cars.
The use of green energy is a must for the future. So all the countries and people have to pay their attention to it and work for it. That’s the reason behind most giant countries in the world like the United States, Russia, and China invests a billion dollars in renewable energy development.