Subsidizing clean energy would lower electricity prices while drastically reducing greenhouse gas emissions, according to a new paper from the University of Chicago’s Energy Policy Institute.
In fact, such an approach is the only policy out of three considered—the two others being carbon price and a clean energy standard—that reduced wholesale electricity prices throughout a 16-year period. The other two raised prices, as the above chart shows.
The paper, released in mid-July, is timely.
It came just a few days before Sen. Joe Manchin (D-W.Va.) struck a deal with Senate Majority Leader Charles Schumer (D-N.Y.) on a package of nearly $370 billion worth of clean energy spending, much of which is in the form of tax credits, over the next 10 years. Manchin is an essential vote for Democrats’ climate change priorities.
The Senate could take up the bill as soon as this week, though final passage is still uncertain.
Although Congress has debated for decades the potential for a clean energy standard or a carbon price, lawmakers have almost always only passed legislation subsidizing clean energy.
Subsidies have long been considered a politically easier but economically less efficient way to tackle climate change compared to a carbon price.
This paper suggests that such conventional wisdom could be wrong—for a particular reason and with important caveats.