The Crippling Economic Costs Of Green Energy Subsidies

The green energy subsidies in the Inflation Reduction Act (IRA) have been justified by the Biden Administration as a booster of U.S. economic growth and jobs.  But when the subsidies are tallied and the overall impacts evaluated, the IRA is a job and economic growth killer. 

The single largest subsidy is the federal investment tax credit (ITC).  Most wind and solar projects will be able to claim a minimum 30% ITC, plus be eligible for an additional 10% credit if the projects rely on domestic manufacturing for components.

The EIA’s optimistic forecast projects about 900,000 megawatts (MW) of solar photovoltaics, 350,000 MW of onshore wind turbines, and 24,000 MW of offshore wind by 2046.  If all of this generation is built, it will result in direct ITC subsidies totaling between $500 billion and $1 trillion, depending on construction costs.  The greater the costs, the larger the subsidies.  Although wind and solar proponents still claim costs are falling, the reality is the opposite.   Offshore wind developers, especially, are clamoring to renegotiate contracts they signed previously, including guaranteed price adjustments for increasing costs, and relaxing the domestic content requirement so they can claim the additional 10% ITC.

Despite spiraling deficits – almost $2 trillion in the fiscal year that ended this past October – green energy subsidies will be financed with still more government debt.  With the increase in interest rates to normal levels, financing costs will soar, adding an estimated $500 to $800 billion to the bill costs, almost as much as the subsidies themselves.

The envisioned spending and subsidies for green energy, several hundred billion dollars annually just for wind and solar generation, will distort energy markets.  First, they will crowd out more productive private investment in the energy sector and reduce the resources available for more efficient forms of generation, especially small modular reactors.  Second, as the deficit increases further, higher interest rates will crowd out private investment in more productive private sectors of the economy.

Along with the Administration’s push to “electrify” the economy, such as higher vehicle mileage standards that act as a de facto mandate for electric vehicles and proposed bans on natural gas appliances, the result, as has been experienced in Europe, will be soaring electricity prices.  Those higher prices will reduce economic growth and employment, far more so than the green energy investments can boost it.  Although the subsidies will benefit wind and solar developers, but the overall economic impacts for the country will be crippling.

One gauge of the adverse economic impacts of green subsidies is the cost to taxpayers to create the promised thousands of green energy jobs, especially for offshore wind.  Using offshore wind developers’ claimed employment impacts, the average subsidy for each green job created will be over $2 million per year.  Forcing taxpayers to pay millions of dollars each year for each job created, while claiming that doing so will bolster the U.S. economy, is Alice in Wonderland economics.

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