Abstract
We test for and measure misallocation of public subsidies for green investment projects in private firms. The context of our study is a major green investment subsidy program in Norway over the period 2012–2023. Combining a model of optimal subsidy allocation with detailed data on project-level carbon emissions and subsidy amounts for both marginal and inframarginal investment projects, we find that policymakers could have achieved the same level of carbon emission reductions with 59% less expenditure. Leveraging unique data on both ex-ante expected and ex-post realized carbon emission reductions for each project, we isolate two distinct sources of misallocation: Prediction errors and intentional over-allocation to specific, favored green technologies and sectors. Misallocation is driven almost entirely by deliberate overallocation to favored green technologies suggesting that decision-makers are able but unwilling to target the climate projects with the highest emission reductions.
The seminar will be held in room 1249 (12th floor) at Eilert Sundts Hus. The address is Moltke Moes vei 31.