Pursuing a Just Green Energy Transition: Evaluating Differential Effects of the Federal Investment Tax Credit

Abstract

As exemplified by the Inflation Reduction Act of 2022, U.S. federal policy is increasingly being used as an avenue to address climate change concerns. One particularly prominent federal tool is the energy investment tax credit (ITC), which first became effective in 2006 but continues to be on the books to this day. The goal of the ITC is to promote investment in and the proliferation of more renewable resources over traditional fossil fuels. Although this green energy transition is necessary to abate oncoming climate risks, it may also have inadvertent consequences by causing economic downturn in communities most reliant on fossil fuel industries and thus most vulnerable to this energy transition. In this paper, I incorporate all U.S. counties from 2000 to 2021, and I analyze whether the ITC has differential economic effects based on the vulnerability of a county. To do so, I utilize existing vulnerability framework to reconstruct vulnerability and exposure scores of counties pre-ITC in 2005. From this, I classify counties as high or low-vulnerability and exposure, and I then analyze whether the ITC differently affects counties in terms of employment, wage, and establishments based on their level of vulnerability or exposure. I ultimately find no differential employment effect, but positive differential wage and fossil fuel establishments effects. This implies that the ITC did not differently impact employment in high versus low-vulnerability counties, and it actually more positively impacted average weekly wage and the number of fossil fuel establishments in high-vulnerability counties.