Not so clean and green

It's a sure bet that federal income tax rates will soon go up. This will incite the usual debates re elasticities: will higher rates mean higher tax revenues?

Elasticities, of course, matter everywhere. This includes whether or not low-carbon ("clean") energy subsidies have the desired effects. This paper (may be gated, but guest access is usually available) by Emma Hutchinson, Peter W. Kennedy and Cristina Martinez suggests that under reasonable assumptions, subsidies of low-carbon emissions can have perverse effects. Here is the abstract,

We show that a production subsidy to low-carbon energy can have a perverse effect on emissions. The subsidy causes a shift in the composition of production towards the cleaner energy, but it also causes an offsetting consumption effect: energy consumption rises because the subsidy causes the equilibrium price of energy to fall. The net effect on emissions can be positive if the low-carbon energy is not significantly cleaner than the high-carbon energy it displaces. We derive
a necessary and sufficient condition for this perverse effect in the context of a competitive energy market. We calibrate an example for an ethanol subsidy in the U.S. and find that this policy is likely to cause an increase in carbon emissions for most plausible parameter values.

Not necessarily clean and green.