Green Subsidies and Local Transitions: Evidence from Energy Communities

Abstract

This paper studies the effectiveness and incidence of the renewable energy Production Tax Credit (PTC) and Investment Tax Credit (ITC). I leverage new geographical variation in the 2023 PTC and ITC to test whether renewable energy credits had real economic impacts. Communities with greater tax credits accumulated 32% more renewable energy capital and produced 28% more renewable energy compared to similar counties. These renewable investments had local economic spillovers, increasing county level construction wages by 7%. However, local increases in investment and wages from renewable projects did not improve political support for renewable energy, but rather increased opposition to congressional action on climate change by 2%.

Figures (7)

• Figure 1: Map of Energy Communities in 2023. Orange and red counties have had at least 0.17% direct employment in fossil fuel industries at least once since 2010. Red counties are designated Energy Communities in 2023 by satisfying both the direct employment criteria and having unemployment rates above the national average in 2022. Source: IRS.
• Figure 2: Predictors of Treatment. Regression coefficients of standardized Z-scores of county characteristics on a county's Energy Community status. Source: Tax Foundation, QCEW.
• Figure 3: Impact of Energy Communities (Time Series). Panel (a) plots the mean of renewable electricity generation capacity normalized such that 2021 is 1 by Energy Community status. Panel (b) plots the mean of renewable nameplate capacity normalized such that 2021 is 1 by Energy Community status. The dashed black line represents the passage of the Inflation Reduction Act in 2022. Source: EIA, IRS.
• Figure 4: Impact of Energy Communities on Renewable Energy. Panel (a) plots the event study coefficients for Energy Communities' impact on renewable energy production. Panel (b) plots the event study coefficients for Energy Communities' impact on renewable energy investment. Controls include state by year fixed effects and a lag of counties locational marginal electricity price quartile (set to the 2022 value post IRA). The dashed vertical line represents the passage of the Inflation Reduction Act in 2022. Source: IRS, QCEW.
• Figure 5: Capacity Factor Comparison. This figure plots the distribution of generators' capacity factors in Energy Communities and the rest of the mainland United States. The capacity factor is the ratio of renewable energy generation to nameplate capacity. The mean capacity factor for Energy Communities and non-Energy Communities is 0.281. Source: IRS, EIA.