Green Waste

We develop and apply a framework to test for and measure green waste: the misallocation of public subsidies for green investment projects. Our context is a major Norwegian subsidy program to reduce carbon emissions. We apply the framework to detailed project-level data on carbon emissions and subsidy amounts for both marginal and inframarginal projects. We find that the decision-maker 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 the decision-maker is able ex-ante to identify the projects with the highest ex-post emission reductions but unwilling to select them.