For decades, the federal government has propped up energy sources and technologies through subsidies and tax credits. From 2010 to 2023, the cumulative cost of these policies was $76 billion and $65 billion for solar and wind power, respectively, and $33 billion for oil and gas. Nuclear energy, meanwhile, received about $26 billion.
Not only have these subsidies been costly for taxpayers, but they have also proven ineffective in changing the energy landscape. Despite receiving more than twice the amount of money as fossil fuels and nuclear power since 2010, wind and solar only generated 10.2 percent and 3.9 percent of the country’s electricity in 2023, respectively.
The Inflation Reduction Act (IRA) supercharged subsidies for wind and solar energy while introducing new technology-specific tax credits for green hydrogen, nuclear power, sustainable aviation fuel, and more. Additionally, it established a $7,500 tax credit for electric vehicles (E.V.s) assembled in North America. Households earning less than $300,000 and individuals earning less than $150,000 are also eligible for the one-time clean vehicle credit.
With Elon Musk and Vivek Ramaswamy at the helm of the newly-minted Department of Government Efficiency (DOGE), the department should work with Congress to repeal energy subsidies and tax credits that distort markets and reward politically favored companies at the expense of taxpayers.
While the government’s practice of picking winners and losers always comes with a steep price tag, the cost of increased energy subsidies from the IRA is exorbitant. Initially projected at $369 billion over the next 10 years, these subsidies are now expected to add over $1 trillion to the federal deficit through 2032. And, with some provisions lacking an expiration date, this figure could feasibly reach $3 trillion.
Since its enactment, the IRA has primarily benefited the wealthy and well-connected. Sixty-six percent of tax credits for residential solar panels and energy efficiency upgrades have been claimed by households with annual incomes over $100,000. Meanwhile, billions of dollars worth of solar and wind provisions have gone to companies like NextEra Energy—the world’s largest utility company—and Chinese solar manufacturers.
Tax credits for E.V.s have been mostly cashed in by wealthy consumers who would have bought an electric vehicle without the credit anyway. A study by the National Bureau of Economic Research estimates that every E.V. sold because of the IRA’s credit costs taxpayers $32,000. As much as Musk may hate to admit it, E.V. tax credits must go.
Not only are subsidies and credits expensive and a driver of the ballooning national debt, but they are also an inefficient way of reducing emissions. Subsidies for wind and solar energy can cost up to $260 and $2,100, respectively, for every ton of carbon dioxide (CO2) reduced. For context, reforestation and tree planting cost about $10 per ton of CO2 reduced.
The federal government’s infatuation with subsidies and tax credits is the wrong way to accomplish the important goals of lowering the nation’s greenhouse gas emissions and accelerating clean energy innovation. If Musk and Ramaswamy are serious about cutting the bloat of the federal budget, DOGE should work with Congress to eliminate subsidies and tax credits—especially for mature technologies—and empower the market and private sector to pick energy winners and losers.
The post To Cut Wasteful Spending, Start With Energy Subsidies appeared first on Reason.com.
