Green Waste

We test for and measure green waste: the misallocation of public subsidies for green investment projects.Our context is a major Norwegian program for green investment subsidies.We develop a model of subsidy allocation and apply it to detailed project-level data on carbon emissions and subsidy amounts for both marginal and inframarginal projects.We find that decision-makers could have achieved the same level of emission reductions at less than half the cost.To isolate the sources of this green waste, we use data on both ex-ante expected and ex-post realized emission reductions for each project.We find that decision-makers are able ex-ante to identify the projects with the highest ex-post emission reductions but unwilling to select them.