A study released by the Rand Corporation, a nonprofit think-tank, argues that it would be better for the United States to meet a 25% renewable energy standard by adopting a tax on fossil-fuels rather than providing subsidies for renewable energies.

The study, “Impacts on U.S. Energy Expenditures and Greenhouse-Gas Emissions of Increasing Renewable-Energy Use”, compared a tax on fossil fuels, subsidies for renewable energies, and a revenue-neutral tax-and-subsidy mechanism.
 
A fossil-fuel tax would increase the cost of fossil fuels, making renewable energies more competitive; subsidies would lower renewable-fuel prices, allowing renewable energies to better compete with fossil fuels; while the revenue-neutral tax-and-subsidy mechanism splits the difference, using a fossil-fuel tax to fund renewable-energy subsidies.

Michael Toman, the study’s lead researcher, told a meeting of congressional staff on Capitol Hill that a fossil-fuel tax would encourage conservation, while also raising revenues which could be returned to the consumers to help offset higher fuel costs. In contrast, renewable energy subsidies shield consumers from real prices, giving them little incentive to conserve. Subsidies would also lead to an increase in government expenditures.

In the case of a revenue-neutral tax-and-subsidy mechanism, consumers are also shielded from some of the cost of renewable-energy prices, and are therefore likely to conserve less than with the fossil-fuel tax model.

The Rand Corporation adds that although increasing the use of renewable energies can reduce GHG emissions, reductions could be realized more cheaply through a diverse combination of measures, including higher energy-efficiency standards for vehicles, higher energy taxes, the introduction of alternatives to fossil-based fuels, and a CO2 cap-and trade program.