Subsidies are complicated, bureaucratic and politicized

Subsidies are criticized for their arbitrary nature, raising concerns about their effectiveness as a primary instrument for supporting the green transition.

Subsidies are often controversial due to their arbitrary implementation, with weak correlations to greenhouse gas emission reductions. The rules governing subsidies can become as complex as tax regulations, involving cumbersome bureaucratic verification processes.

The arbitrary, controversial, and politicized nature of subsidies leads economists to question their potential to disrupt markets, as they may unfairly favor certain corporations over their competitors. As a result, many economists now advocate for “carbon pricing,” which is considered less arbitrary and more conducive to market dynamics.

While subsidies have the potential to contribute to the green transition, their passage through Congress is uncertain due to perceptions of unfairness.

The allocation of subsidies through political processes can be arbitrary, often favoring certain corporations and individuals over others, leading to concerns about market disruption. Additionally, subsidies must be approved by both Federal and State Congresses, which can create disconnects between federal subsidies and state tax policies, especially if state-level tax increases negate the benefits of the subsidies.

Currently, subsidies tend to benefit wealthier individuals more than low-income households. For example, affluent households can afford to install solar panels on their roofs, whereas low-income renters often lack such opportunities. Similarly, subsidies for electric vehicles are provided as a fixed amount, regardless of how much the vehicle is used. While subsidies per kilowatt-hour generated by solar and wind power offer a slight improvement, long-term contracts guaranteeing a minimum price may discourage recipients from further lowering costs. Since these subsidies are only loosely tied to greenhouse gas (GHG) emission reductions, they may not provide the most cost-effective means for the government to achieve emission cuts. As a result, economists are increasingly advocating for a shift towards carbon-pricing methods as a more efficient alternative.

Subsidies have played a crucial role in fostering the green market. However, as this market grows, subsidies are gradually losing political support and are being phased out.

Subsidies were instrumental in helping the nascent green market attract its initial customers, paving the way for mass production and cost reductions in solar panels, wind turbines, and electric vehicle batteries—key components of the green transition.

The expectation is that as production scales up, the prices of these green products will continue to decline, eventually outcompeting fossil fuels in a dynamic market free from the distortions caused by subsidies. Many now believe it is the appropriate time for carbon pricing schemes to take over as subsidies are phased out.