The government subsidies for solar (themselves not without controversy) are great examples of how we can nudge resources to be applied to areas with the greates

The government subsidies for solar (themselves not without controversy) are great examples of how we can nudge resources to be applied to areas with the greatest positive externalities. Government absolutely has a crucial role to play. Government works best when it can offer $1 of incentive to entice $9 of private investment. We have to be very careful of proposals that work the other way around. For example the EV tax credit offered up to $7,500 tax credit for someone to spend on average let’s say $50k on an electric car. $1 of subsidy incentivized $6.66 of spending. But to make that car someone actually wanted to buy, automakers spent many billions in R&D up front, which was also incentivized by the EV tax. The EV tax credit is estimated to cost about $7.5 billion once all the major automakers have entered the market and sold their share (200,000) of vehicles. I’m not sure if we got a 1:10 ratio, but it’ll be in that ballpark. This credit made particular sense because it leveraged the technology curve by allowing scale-up to occur in the face of the prohibitively high cost of batteries which now have come down to the point where EVs can be sold profitably without the subsidy. I don’t think we’d be looking at $100/kWh for the batteries without that subsidy.