Subsidies in Solar/Wind Energy Sector: Positive and Negative Consequences

The objective of this report is to evaluate subsidies given in the solar/wind energy sector to determine their negative and positive consequences. This report evaluates the example of countries such as Australia, the United States and the United Kingdom to determine how these countries provide subsidies to customers and corporations in the industry.

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Legal Aspects of International Trade and Enterprise

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Executive Summary
The objective of this report is to evaluate subsidies given in the solar/wind energy sector to
determine their negative and positive consequences. This report evaluates the example of
countries such as Australia, the United States and the United Kingdom to determine how
these countries provide subsidies to customers and corporations in the industry. The
positive consequences of these rebates are analysed in these reports as well such as
reduction of environmental pollution, promotion of the use of renewable energy sources,
positive impact on the economy and protection of environmental resources. The negative
consequences of these subsidies are also evaluated in this report such as a higher burden
on the government, high waste and pollution, unfair advantage and difficult to receive the
advantages.

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Table of Contents
Introduction............................................................................................................................3
Subsidies in Solar/Wind Energy Industry..............................................................................4
Example of Countries.........................................................................................................5
Positive aspect of the grant of Solar/Wind energy tax rebates..............................................6
Negative consequences.........................................................................................................8
Conclusion...........................................................................................................................11
References...........................................................................................................................12

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Introduction
In today’s competitive business world, corporations have to make sure that they effectively
comply with sustainability provisions and requirements to reduce their carbon footprint.
These steps are necessary to make sure that companies are able to reduce greenhouse
carbon emissions which lead to major issues such as climate change and global warming
(Merckx and Pereira, 2015). The use of renewable energy sources such as solar and wind
energy is important to make sure organisations and individuals reduce their carbon
footprint. In order to encourage these actions from companies and individuals,
governments provide subsidies to them in order to make sure that they invest in renewable
energy sources. Subsidies are one of the most common ways through which countries
promote the use of solar and wind energy (Coady et al., 2015). The objective of this report
is to evaluate the role of subsidies in the promotion of solar and wind energy by companies
and individuals on a global stage. This report will evaluate the example of different
countries that have implemented policies for subsidies to companies and individuals if they
use solar and wind energy. The positive and negative consequences of this approach will
be analysed in this report to determine what the implications of these policies are and
whether they are any effective in promoting the use of renewable energy sources.

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Subsidies in Solar/Wind Energy Industry
Energy subsidies have become common in many countries around the globe as the threat
of climate change becomes prominent. Through these subsidies, governments take
measures in order to make sure that they keep the prices for customers lower than
compared to the market or reduce other costs for consumers and producers. Generally,
subsidies are given through payment of direct cash or related bodies or through indirect
support mechanisms such as price controls, trade restrictions, limits on market access and
tax exemptions (Timilsina, Kurdgelashvili and Narbel, 2012). The development of today’s
modern society depends substantially on ion subsidy support through which governments
achieve major sustainability goals. However, there are many negative implications of
subsidies as well because their elimination is considered as an effective way to reduce
global carbon emissions (Coady et al., 2015). The governments provide subsidies on the
use of fossil fuel and their effective allocation and use which result in making it easier for
individuals and corporations to access them non-renewable energy sources and their
consumption increase. These subsidies lead to higher consumption and waste of
resources which hinders the ability of the country to remain sustainable. Furthermore,
these subsidies impose a heavy burden on the government which leads to negatively
affecting the economic growth of the nation since the government is not able to collect
adequate resources.
The purpose of providing subsidies is to make sure that there is security in relation to the
supply of indigenous fuel production (Pegels and Lutkenhorst, 2014). The natural
resources are scarce, and their effective utilisation is crucial for achieve maximum
outcomes. Therefore, the government implements these policies to ensure that individuals
and corporations have access to the supply of energy resources which they required for
their production. Moreover, these policies also reduce the import dependency of a country
since they did not have to rely on other nations to fulfil the requirement of energy suppliers.
These practices also support the overseas activities of national energy companies which
lead to the promotion of economic growth. These subsidies also ensure economic
improvements by making sure that the production operations of the country are
proliferated. The renewable energy subsidies promote environmental improvement by
reducing pollution and greenhouse emissions in the country (Clo, Cataldi and Zoppoli,
2015). This also assists the government in fulfilling their international obligations regarding
the protection of the environment and its resources. There are various economic benefits

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of these policies as well since they assist in maintaining and controlling the prices of
commodities in the country which is crucial to achieve consumer equilibrium. These
subsidies also promote employment and social benefits by creating new employment
opportunities especially in the periods of negative economic transitions such as recession
or depression.
Example of Countries
The impact of subsidies on operations of countries can be assessed by examples of
different countries that have adopted policies in order to provide subsidies to individuals
and organisations. A good example is the solar energy subsidies given by the Australian
government in order to increase the use of solar panels in the country. The government
provide rewards to individuals and companies in Australia that uses solar panels. For
example, they receive Small-Scale Technology Certificates (STCs) for the installation of
solar panels to run their operations (Whale, McHenry and Malla, 2013). These certificates
are given based on the size and the solar power which is generated by those systems.
Around $26.6 STCs are given by the government to a 1.5 Kilowatt (kW) solar power
system that is situated in Melbourne (Finder, 2019). Through these subsidies, the
homeowners can save more than $4,500 whereas companies can save more money
which is invested in energy (Finder, 2019). The government also provided Feed-in tariffs
which are a new type of rebates that are given to electronic companies. These are charges
which are imposed on the electronic companies to make sure that they pay homeowners
for installing solar panels in their houses. These rebates are also available for companies
that install solar panels to run their operations. The corporations and individuals have the
option to reimburse for each kWh of the solar electricity which is generated by them.
Another good example of a country that offers these subsidies is the United States; the
government of the United States offer financial incentives to companies that install solar
panels to manage their operations.
They receive tax breaks and many other financial incentives that resulted in reducing their
net energy costs by 30 to 50 per cent (EnergySage, 2019). The Australian government has
offered similar tax and other rebates to organisations. They also have the option to receive
solar credit discount in which the prices of installation of solar and wind energy is reduced
due to discounts. In the case of wind energy, the initial investment is considerably higher
than compared to solar energy due to which the rewards and incentives for this energy
source are also higher than compared to solar energy. Small businesses that did not have
an annual turnover of more than $2 million have the option to receive a tax break of

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around $6,500 in a particular year which reduces their prices and overall operating costs
(Finder, 2019). The government of the United States also offers a 30 per cent investment
credit option to organisations that wanted to install a commercial solar system to run their
operations. Similar rebates and incentives are also available for companies and individuals
in the United Kingdom. The option of Feed-in tariff is available in the United Kingdom as
well for companies for both solar and wind energy sources. The government has set a
target to convert 20 per cent of all energy sources into renewable energy sources
(GreenMatch, 2019). Financial incentives are available for people and organisations to
avoid traditional heat technologies and change them with renewable heat systems. The
implementations of these policies have various positive and negative consequences which
are necessary to be evaluated to determine the effectiveness of these policies.
Positive aspect of the grant of Solar/Wind energy tax rebates
Government, as well as organisation, may face many benefits by the use of solar energy
and wind energy. For the businesses, one of such benefit is tax rebate. Governments of
different nations are providing tax benefits and rebates to those organizations that use
natural energy such as solar wind energy in their operations. If to talk about United States
government, this is to state that Investment tax credit gives the benefit of business where
the cost of installation of solar energy system gets deduct by 30% from their Federal taxes.
Here this is to mention that the above-mentioned investment tax credit is applicable to
commercial as well as to the residential system. This is just an example, and many
economic benefits are available to businesses. There are many positive aspects of such
rebates, which are discussed below:-
 Positive impact on the economy
It is well known that businesses are an important part of every economy and an economy
grows when business doing well. It is one of the significant benefits of providing tax
rebates on the use of solar and wind energy. Businesses have to pay less tax when they
use such energy, which affects their overall profit margin in a positive note. This is about
one business, but if to see this benefit on a large scale it influences the whole economy in
an affirmative way.
The same is beneficial in cases of residential use. In such cases, although profit factor is
not there, people have to pay fewer amounts towards their electricity bill in comparison to
the use of traditional energy resources (Chiras, 2011). As per the claim made by One

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Block off the Grid, domestic use of solar panel can attract saving of above $100 per month
in many states. This brings a positive impact on the savings of citizens and influences the
economy in a good way.
 Save the Environment
This is counted as the topmost benefit of solar energy tax rebates. The main motive of tax
rebates reflects in this point, Government of nations motivates the use of natural energy as
the traditional sources to bring many negative impacts in the environment on local as well
as in global level (Holowka, 2017). Carbon emission is one of such negative impact that
the use of traditional energy sources has on the environment. Solar and wind energy
rebates increase the use of such innovative energy. People use these energies as they
find the same pocket-friendly and in this manner, it brings positive results to the
environment. In order to discuss the statics, this is to state that the US is in second place
in the world when it comes to annual carbon dioxide emissions. The level is 17.9%. This
nation may reduce its carbon footprints by substituting utility power with solar and wind
energy (Energyinformative.org, 2019).
 Energy independence
The US has a significant dependency on other nations for its energy and other resources.
In other words to say this nation has very limited energy resources and the same has to
import them from other nations. In 2012, 40% of the petroleum consumed was imported
from other nations. It is well known that the natural resources are limited and they are
limited to every nation. The same goes for the US, and the country uses foreign energy for
domestic as well as commercial purpose. This again has much negative consequence.
County has to fulfil the demands of citizens with respect to the availability of energy. The
county is inevitably running out of coal, oil and other natural gases. Continuous use of
utility power and other dangerous and expensive energy sources, county’s energy and
national security suffer. In such a situation, tax rebates help very much to the government
(Energysage.com, 2019). Citizens and businesses find the use of solar and wind energy
beneficial for their financial position and in this manner, they use such resources and
energy more and more, it reduces the dependency of the country on other countries. A
further level of imports also gets low as wind, and solar energy is available in a sound
amount. When a country has more export in comparison to imports, it proves beneficial for
the same. In this manner tax rebates is a good option to motivate people to use such new
energies for that counties do not have to depend on others.

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The above-mentioned points are directly relatable to the benefits of tax rebates in the area
of solar and wind energies. The individuals, as well as government, may experience many
other benefits due to the existence of tax rebates and other financial benefits. These
include increment in home value, low payback period, secure investment, and guaranteed
performance. In order to conclude the discussion on positive aspects of tax rebates, this
would not be wrongful to state that the same motivate people to use such energies that
further bring many positives on local and global, economic and non-economic benefits.
Negative consequences
Along with positive consequences, there are various negative implications of rebates,
financial incentives and subsidies which are given in solar and wind energy industry.
Following are the key negative implications of subsidies for countries.
 Higher waste and pollution
The subsidies given for the use of solar and wind energy sources resulted in increasing
wastage of energy sources by individuals and corporations which negatively affect the
ability of the government to achieve sustainable goals. The promotion of these rewards
increases the use of these energy options in countries by making them easily accessible to
companies and individuals (Hirth, 2013). Although this increases the use of renewable
energy as well; however, it also results in increasing the waste of sources of renewable
energy sources. It becomes difficult for the government to control these operations and
due to their ease of availability, it becomes easier for companies and individuals to exploit
them. Due to the higher rate of wastage of these products, it becomes difficult for the
government to keep them in control and it also hinders the ability of the government to
achieve sustainable development goals.
Furthermore, the popularity of these options resulted in increasing the production of solar
panels and wind turbines which also contributes to the growth of pollution in the country. In
the solar/wind energy, the companies that produce solar panels and wind turbines often
use non-renewable energy sources to produce them which increases pollution. Another
issue is that the solar panels are manufactured by toxic materials which resulted in
increasing pollution in the environment (Shellenberger, 2018). Currently, the substitute of
these materials is not found due to which the promotion in the production of these panels
and turbines will increase the pollution level which will defeat the purpose of installing them
in the first place.

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 Burden on the Government
The subsidies, tax rebates and other financial incentives which are given by the
government to individuals and companies in order to increase the use of solar and wind
energy resulted in creating a huge financial burden on the government. The incentives are
given by the government, and the growth in tax rebates also reduces the national income
of the country (Batlle, Perex-Arriaga and Zambroano-Barragan, 2012). The government
has access to fewer resources to meet the necessary demands and requirements in the
country to make sure that the basic needs of individuals are fulfilled. These factors create
a substantial burden on the government in relation to the lack of availability of financial
resources in the country. For example, the deduction of 30 per cent by the government of
the US for solar tax credit and options available for companies to receive credit at lower
interests often imposes a substantial burden on the government (Baldi, Peri and Vandone,
2014). The reimbursement of money for energy consumption also reduces the profitability
of electricity corporations in the country.
 Unfair advantage
A research conducted by the World Bank found that the commercial operations of the
solar/wind industry are dominated by only a few enterprises. Since many subsidies and
rebates are available for these organisations, it becomes easier for them to create a
monopoly approach in the industry since the government did not impose huge taxes on
them (Pinkse and Groot, 2015). They are also able to acquire high credits for further
expansion of their operations at relatively low interest rates which makes it easier for them
to expand their operations. Since there are no small companies operating in this sector
and it is loosely regulated by the government, the chances of exploitation of the rights of
stakeholders increase. It is easier for these enterprises to gain an unfair advantage in the
market while relying on these subsidies which show that the negative implications these
policies resulted in adversely affecting the ability of the government to achieve
sustainability goals within a reasonable timeframe (Merckx and Pereira, 2015). In poor
countries or households where the requirement of renewable energy is important, the
availability of these subsidies is not effective. Thus, it becomes difficult for the government
to achieve the sustainability goals by the implementation of policies for subsidies.
 Difficulty to receive benefits
The expansion of these practices through subsidies also makes it difficult for corporations
to make sure that these options are available for them who need them the most. Major

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corporations that operate in this sector are the ones that take advantage of these
subsidies; however, it becomes difficult for small corporations or individuals to make sure
that they take advantage of these subsidies (Borenstein, 2012).

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Conclusion
Based on the above observations, it can be concluded that subsidies are given by the
government in the solar/wind energy industry in order to increase the use of these
renewable energy sources to make sure that the issue of climate change and global
warming can be addressed accordingly. The examples of Australia, the United States and
the United Kingdom are analysed in this report to evaluate different types subsidies given
by the government to individuals and corporations that use these renewable energy
options to conduct their operations. There are various positive consequences of availability
of these subsidies such as it encourages individuals and corporations to shift their
operations in order to use renewable energy sources. These options also eliminate the
issue of growing pollution since it reduces greenhouse consumption by the government.
These policies also make it easier for the government to discharge its international
obligations towards the promotion of renewable energy sources to make sure that
adequate policies are implemented for the protection of environmental resources.
However, there are many negative consequences of these subsidies as well such as an
increase in the number of waste and pollution because the materials use for these
resources are toxic. These also impose a financial burden on the government by limiting
the financial resources. Most of these operations are also dominates by a few enterprises
which makes it easier for them to increase the prices of these products to gain an unfair
advantage. Thus, these negative factors should be considered by the government while
formulating policies for subsidies for the solar/wind energy industry to sustain their
effectiveness.

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