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

Joseph E. Aldy, Todd Gerarden and Richard L. Sweeney

Journal of the Association of Environmental and Resource Economists, 2023, vol. 10, issue 4, 981 - 1018

Abstract: This study examines the choice between subsidizing investment and subsidizing output to promote socially desirable production. We exploit a natural experiment to estimate the impact of subsidy margin on the productivity of wind farms. Using instrumental variable and matching estimators, we find that investment subsidy claimants produce 10%–12% less power than they would have under the output subsidy. Accounting for extensive margin effects, we show that output subsidies are more cost-effective than investment subsidies over a large range of output targets.

Date: 2023
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Related works:
Working Paper: Investment versus Output Subsidies: Implications of Alternative Incentives for Wind Energy (2018)
Working Paper: Investment versus Output Subsidies: Implications of Alternative Incentives for Wind Energy (2018)
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