Does The Government Pay For Renewable Energy?
Renewable energy has become increasingly important in recent years as a sustainable alternative to fossil fuels. According to the UN, renewable energy is derived from natural resources like sunlight, wind, rain, tides, and geothermal heat, which are naturally replenished source. The main types of renewable energy include solar, wind, hydroelectric, biomass, and geothermal. Unlike fossil fuels which are finite, renewable energy sources are constantly replenished and will never run out. Renewable energy is seen as crucial for addressing climate change, reducing pollution, improving public health, and bolstering energy security.
History of Government Support
The U.S. government has implemented policies and programs to support renewable energy development for decades. Some key actions include:
In 1978, the Public Utility Regulatory Policies Act (PURPA) required utilities to buy electricity from qualifying facilities, including some renewables like wind and solar power plants. This helped spur early renewable energy adoption. https://www.energy.gov/eere/eere-timeline
The Energy Policy Act of 1992 established tax credits and incentives for renewable electricity generation. Soon after, the Office of Energy Efficiency and Renewable Energy (EERE) was formed to advance clean energy research and adoption. https://www.choicesmagazine.org/2006-1/biofuels/2006-1-02.htm
The 2005 Energy Policy Act expanded incentives like the renewable electricity production tax credit. The 2007 Energy Independence and Security Act increased renewable fuel standards. More recently, the Inflation Reduction Act of 2022 enacted long-term tax credits to make renewable energy investments more affordable.
Current Federal Support
The federal government currently offers several incentives and tax credits to support renewable energy adoption. The main federal tax credit is the Investment Tax Credit (ITC), which allows homeowners to deduct 26% of the cost of installing solar panels from their federal taxes through 2032 (Residential Clean Energy Credit | Internal Revenue Service). This credit applies to both residential and commercial solar installations. There is also a Solar Energy Credit that allows taxpayers to deduct 30% of qualified solar electric property costs from their taxes (Homeowner’s Guide to the Federal Tax Credit for Solar …). This 30% credit is available through 2032 as well.
The federal government also offers an Energy Efficient Home Improvement tax credit that covers 30% of the cost to buy and install certain high-efficiency equipment for residential properties such as solar water heaters, solar panels, and fuel cells (Federal Tax Credits for Energy Efficiency). This credit is available through 2032 and has a lifetime limit of $2,000.
In addition to tax credits, the federal government provides grants, loans, and other incentives for renewable energy through programs such as the Rural Energy for America Program (REAP). According to the Database of State Incentives for Renewables and Efficiency, the federal government allocated over $50 billion for renewable energy initiatives between 2009 and 2019.
State-Level Programs
Many U.S. states have implemented programs to encourage renewable energy growth through incentives, renewable portfolio standards (RPS), and other initiatives. According to the Database of State Incentives for Renewables and Efficiency (DSIRE) (DSIRE), there are over 3,000 state-level programs supporting renewable energy across the country.
29 states plus Washington D.C. and 3 territories have RPS policies requiring electric utilities to source a certain percentage of their power from renewable sources. States like California, New York, and Hawaii have some of the most ambitious RPS goals targeting 50-100% renewable energy by 2045-2050. To meet RPS requirements, utilities acquire renewable energy credits (RECs) from developers.
Many states offer financial incentives like rebates, grants, tax credits/exemptions, and favorable loan programs for renewable energy projects. For example, Oregon offers up to $6,000 in tax credits for residential solar installations. States also fund renewable energy workforce training programs through community colleges.
In 2021, an estimated $2.3 billion was appropriated for state renewable energy programs and funding continues to expand. PolicyAnalysis.com reports state-level incentives have catalyzed over 25 GW of solar and wind energy development.
Local and Utility Support
Many local governments and utilities offer programs to support renewable energy. These include rebates, net metering, and community solar programs.
Rebates provide upfront discounts to homeowners and businesses for installing renewable energy systems like rooftop solar panels. According to the EPA, over 300 utilities across the U.S. offer rebates for solar panel installations (EPA).
Net metering allows renewable energy system owners to get credit for excess electricity they generate and send back to the grid. This helps offset the cost of installation. Net metering policies exist in over 40 states, but the details vary widely (Solar Energy Industries Association).
Community solar allows utility customers to purchase a portion of a larger, shared solar installation. The customer receives credits on their electricity bill proportional to their share of the community solar project. Community solar expands renewable energy access to renters, apartments, and properties unsuitable for on-site solar (NREL).
Total Government Spending
Governments at the federal, state, and local levels collectively spend billions of dollars annually supporting renewable energy development and deployment in the United States. According to the International Energy Agency’s Government Energy Spending Tracker, total public spending on renewable power generation amounted to $48.8 billion in 2021.
At the federal level, tax incentives and direct expenditures make up the bulk of renewable energy support. The largest federal incentive is the production tax credit, which provided $26 billion in support for wind energy projects in 2020 according to the Congressional Research Service. Additional federal incentives like the investment tax credit for solar power bring total federal renewable subsidies to over $30 billion annually.
Meanwhile, U.S. states spent $5.9 billion supporting renewables in 2021 per the IEA, through programs like renewable portfolio standards, rebates, and financing incentives. Many local governments and utilities offer additional incentives, though comprehensive data is lacking. Experts estimate total state and local renewables spending exceeds $10 billion per year.
In summary, current government spending supporting renewable energy deployment in the U.S. likely totals between $40-50 billion annually, with the majority coming from federal incentives and the remainder from state and local programs.
International Comparisons
The United States provides strong incentives and subsidies for renewable energy, but lags behind some other countries in terms of the scale and scope of support. According to the International Energy Agency, global government spending on renewable energy incentives and subsidies reached $169 billion in 2020 1. The European Union accounted for the largest share at 57%, followed by China at 21% and the United States at 13%.
On a per capita basis, European countries such as Germany, Italy, and Spain provide some of the most generous incentives. For example, Germany offers a feed-in tariff program that guarantees renewable electricity generators fixed prices over 20 years. Households and businesses also receive subsidies covering up to 45% of installation costs for solar panels 2. Comparatively, the main US incentives are the investment tax credit, which covers 26% of costs for residential solar, and the production tax credit for utility-scale wind and solar.
While the US has made significant progress, having tripled renewable energy generation over the past decade, a national carbon pricing system and stronger incentives could help accelerate the transition further. According to the IEA, the US still spends over 3X more on fossil fuel subsidies than clean energy support 3.
Impact on Costs
Government incentives have played a major role in lowering the costs of renewable energy over time. According to Tryndina (2022), financial incentives like tax credits, rebates, and grants have helped drive down costs by encouraging more rapid deployment and economies of scale. As more solar panels and wind turbines are manufactured and installed, costs decline through improvements in technology and efficiencies.
Research shows that the levelized cost of energy from solar PV dropped 88% between 2009 and 2020, while wind energy costs fell 70% in the same period (Rudolph, 2023). Tax incentives have accelerated cost reductions by motivating companies to invest and innovate. The continual decline in renewable energy costs has made them more economically competitive with fossil fuels. Without government incentives spurring deployment over the past few decades, costs would likely be much higher today.
Future Outlook
The future of government support for renewable energy remains uncertain in some respects, but general trends are emerging. Many current tax credits and other incentives are scheduled to be phased out or reduced in the coming years. For example, the solar Investment Tax Credit (ITC), which allows taxpayers to deduct 30% of the cost of installing a residential or commercial solar energy system from their federal taxes, will drop to 26% in 2023 and 22% in 2024 before expiring completely for residential projects in 2034 (https://www.eia.gov/energyexplained/renewable-sources/incentives.php).
However, new policies and programs are also being implemented. The Inflation Reduction Act of 2022 introduced various clean energy tax credits and grants, including incentives for renewable energy projects, electric vehicles, and energy-efficient home improvements (https://www.americanprogress.org/article/implementing-americas-clean-energy-future/). Many states have also set renewable portfolio standards that require utilities to source a certain percentage of their electricity from renewables.
Forecasts suggest strong continued growth in renewable energy, driven by improving economics as well as policy support. The U.S. Energy Information Administration projects that renewables will represent 22% of U.S. electricity generation in 2023 and 42% in 2050, up from 20% in 2020 (https://www.eia.gov/outlooks/aeo/). Global investment in renewable energy capacity is also expected to reach record levels in the coming decades.
Conclusions
In summary, governments at the federal, state, and local levels in the United States provide significant support for the development of renewable energy. This includes tax credits, grants, loan guarantees, and other incentives. Total government spending on renewables is in the tens of billions annually. While this support has increased adoption of renewables like solar and wind, it remains controversial. Some argue incentives create market distortions and should be reduced. However, most experts believe continued government support is crucial to further increase renewable penetration and reduce costs through economies of scale and technology improvements. Reduced carbon emissions from replacing fossil fuels are also an important policy goal. Overall, it appears government subsidies for renewables will remain an important part of U.S. energy policy for the foreseeable future.
