The Paul Douglas Institute

The Effectiveness of a Tax Incentive on Growth

Renewable energy (RE) investment is a necessary step towards reducing carbon emissions worldwide while meeting growing energy demand. There are many policies that seek to support a growth in RE capacity, with varying degrees of both political and economic success. Given the complex nature of energy markets and transmission, any concentrated effort of both public and private entities to make the green transition will result in inevitable trade-offs. Thus, in this paper, we first qualitatively analyze the political realities of RE investment and policy status in the United States, subsequently proposing an econometric analysis of the effectiveness of a specific support policy—tax incentives—in the United States using panel data and a time-series regression framework. The results—which we stress should be considered a preliminary analysis that seeks to raise further research topics—show that there are significant relationships between RE investment growth and the implementation of tax incentives. Such results suggest that, with support policies, the United States may be able to reach a double objective: increasing energy capacity and investment while also reducing carbon emissions and reaching a greener future. Our research also highlights potential future research areas and statistical analyses that may provide deeper and greater insight into the effectiveness of tax incentives on RE investment growth.