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Means-Tested Solar Subsidies

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  • Mark Colas
  • Emmett Reynier

Abstract

We study the optimal design of income-contingent subsidies for residential solar panels. Using remotely sensed data on solar panel installations across the contiguous US and a border-discontinuity design, we estimate that the responsiveness of installation rates to subsidies is strongly decreasing in income. Using these empirical elasticities, we estimate a model that embeds a solar panel installation decision into a dynamic consumption/savings framework with borrow-ing constraints. Counterfactual simulations reveal that switching to production-maximizing income-contingent subsidies leads to a three-fold increase in public funds received by low-income households and a 2.4% increase in national solar production. Means-tested subsidies are justified on both equity and efficiency grounds.

Suggested Citation

  • Mark Colas & Emmett Reynier, 2024. "Means-Tested Solar Subsidies," CESifo Working Paper Series 11378, CESifo.
    • Handle: RePEc:ces:ceswps:_11378
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    References listed on IDEAS

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    More about this item

    Keywords

    rooftop solar; subsidies; 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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