Apparently Energy Secretary Steven Chu wasn’t kidding when he told Fareed Zakaria major investments are being made in energy, science and infrastructure. At least when it comes to climate change.

According to Congressional Budget Office (CBO) analysis released last week, federal spending to address climate change in 2009 accounted for more than one-third of all climate change spending in the last decade, thanks in no small part to the stimulus bill:

From 1998 through 2009, appropriations for agencies’ work related to climate change totaled about $99 billion (in 2009 dollars); more than a third of that sum—$35.7 billion by CBO’s estimation—was provided in the American Recovery and Reinvestment Act of 2009. During that period, the nation’s commitment to climate-related technology development increased significantly, as has the forgone revenue attributable to tax preferences. Funding for climate science and international assistance, by contrast, stayed roughly constant.

The report’s authors make a few interesting notes when considering what forms of investment have, historically, yielded the greatest returns. They point out that reducing or eliminating fossil fuel subsidies is likely to improve the value of R&D investments, as renewable energy alternatives would then compete with fossil fuels in an unadulterated way. The authors also say that tax preferences, as they’ve been used in the past, can be an inefficient tool to promote greenhouse gas reductions:

For example, conserving home heating oil by installing solar heating systems is encouraged by a tax credit, but turning thermostats down and wearing sweaters is not, even though doing so could achieve substantial reductions in GHG emissions at a lower cost. Tax preferences that are intended to encourage consumers and producers of electricity to choose technologies that reduce emissions vary widely in the amount of GHG emissions curtailed per tax dollar forgone.

 

According to one calculation, the subsidy per ton of greenhouse gases not emitted can vary by about 50 percent from the same tax provision, depending on whether it is used for wind or geothermal technology. Most analysts believe that better results might come from increasing the price of GHG emissions because market forces tend to equalize the cost of reducing GHG emissions as consumers and producers respond to price signals. Despite their limitations, tax credits and deductions have helped encourage investment in renewable sources of energy.

Tiffany Clements is managing editor of Weathervane.