Optimal Subsidies for Residential Solar

Mark Colas and Emmett Reynier

Journal of Political Economy Microeconomics, 2026, vol. 4, issue 1, 213 - 264

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 United States 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. National funding for subsidies under the current system exceeds the unconstrained optimum by over 70%. Our results suggest that there could be large welfare gains to redistributing funds toward other programs.

Date: 2026
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