Working Paper No. 13-06
Getting Green with Solar Subsidies: Evidence from the California Solar Initiative
Jonathan E. Hughes and Molly Podolefsky
Electric utilities, local and state governments utilize a variety of subsidies to promote energy efficiency and renewable energy. We study the California Solar Initiative and find that upfront rebates have a large effect on residential solar installations. We exploit variation in rebate rates across electric utilities over time and control for time-varying factors that affect PV adoption. Our preferred estimates suggest increasing average rebates from $5,600 to $6,070 would increase installations by 13 percent. Overall, we predict 58 percent fewer installations would have occurred without subsidies. Over 20 years, we estimate these additional installations reduce carbon dioxide emissions between 2.98 and 3.7 million metric tons and local air pollutants (NOx) by 1,100 to 1,900 metric tons, about as much as is produced by a small to mid-sized natural gas power plant. However, the program is costly. Of the $437 million in rebates awarded, $98 million were rents to installations that would have taken place absent rebates. Back of the envelope calculations suggest deadweight loss as high as $169 million or between $46 and $69 dollars per metric ton of carbon dioxide or $91,000 and $142,000 per ton of NOx.