Congress Cut $500 Billion in Energy Subsidies. That's Good—and Proof Reform Is Possible.

Green energy is promising. But subsidies distort the tax code, misallocate capital, and favor companies already in the game.

The "Big Beautiful Bill" did a lot of things, not all of them good. One positive step was to repeal many of the Inflation Reduction Act's green energy subsidies. It's a little disappointing that Congress didn't repeal all of them, as President Donald Trump promised during the campaign. Yet it's also somewhat amazing to witness a genuine rollback, something that was never a given for this bill and which typically loses out to special-interest politics.

To be clear, I want more green energy from more sources, including wind, solar, geothermal, and whatever other promising avenues innovation makes possible. But subsidies like those of the Inflation Reduction Act are the wrong way to get there. They distort the tax code, misallocate capital, and favor companies already in the game, to the detriment of new entrants that might bring something more transformative.

The result isn't more abundance; it's cronyism masquerading as climate policy.

The promise to roll back the Inflation Reduction Act's sprawling tax credits and handouts was once a central part of the GOP's economic platform. According to a Cato Institute analysis, these at one point were going to amount to $1.2 trillion over 10 years, many times the originally projected cost. The House version of the budget took a meaningful swing at it, with hard deadlines for wind and solar tax credits, and tighter eligibility geared toward projects that could begin construction within 60 days of enactment and be in service before 2029.

It wasn't perfect, but it was a real attempt to inject discipline into a policy that had run off the rails. The Senate, however, had other plans, and the reform was diluted. New carveouts were added. Key provisions were extended, and the effective phaseout was punted years into the future.

Thanks to generous grandfathering language, projects that start construction within a year of the bill's enactment can lock in 10 more years of production or investment tax credits. And what, by the way, counts as starting construction? Spending just 5 percent of expected costs on solar panels or booking a consulting firm. In Washington, that's good enough.

The good news is that even this watered-down reform is expected to cut green subsidies by about $500 billion over 10 years. That's no small feat, especially in a town where "cutting" usually means "slightly slowing the growth of programs we already can't afford." It's doubly impressive given that the forces fighting to maintain the subsidies outspent reformers by orders of magnitude.

Now, we're hearing the usual refrain—"But fossil fuels are subsidized too!"—as evidence of the outrage and unfairness that it is to trim green energy subsidies down. I sympathize with the desire to end fossil fuel subsidies.

I want an end to all private-sector subsidies. If your business model depends on special treatment in the tax code, then, as economist Douglas Holtz-Eakin once put it, you don't have a business. You have a tax shelter.

Yes, there are some lingering fossil fuel subsidies on the books. Cato's Adam Michel helpfully identifies them: credits for enhanced oil recovery, for marginal wells, and for carbon capture and sequestration. These are targeted giveaways, and they should also go.

However, what most people clamoring for the end of fossil fuel subsidies are pointing to aren't subsidies at all but simply neutral tax treatments—like expensing and percentage depletion—that apply across many industries. They might distort investment decisions in general, but they are not special favors for oil and gas.

In addition, when you compare the size of green versus fossil fuel subsidies, the difference is staggering. Scaled by energy output, green energy receives subsidies at rates 19 to 30 times those of coal, oil, and natural gas. According to Michel's analysis, 94 percent of the fiscal cost of energy-related tax provisions over the next decade—$1.2 trillion—would have gone to renewables. Only 6 percent—about $70 billion—would benefit fossil fuels. And again, much of that 6 percent isn't tailored to fossil fuel companies; it just happens to benefit them.

In other words, the idea that green subsidies got eviscerated while fossil subsidies thrive isn't correct. That's not an argument for maintaining fossil fuel subsidies; that's an argument for taming the outrage.

If we've learned anything here, it's that cutting subsidies is hard. Once they're in place, armies of rent-seekers mobilize to preserve them. Renewable energy developers, financial firms, and politically connected manufacturers descend on Capitol Hill to keep the money flowing.

But we've learned something else: Fighting back can work. Even this partial rollback shows that reformers aren't powerless. The next time someone says eliminating tax preferences is impossible, point to $500 billion in savings. We got that rollback not because the politics were easy but because some people stood firm.

COPYRIGHT 2025 CREATORS.COM