Politicians love subsidies. Tax credits for solar panels, rebates for electric cars, grants for battery factories—these are easy sells. Nobody loses their job immediately, energy bills don’t spike, and voters see gleaming new infrastructure instead of shuttered coal plants. But a new study published in Nature Climate Change reveals the uncomfortable truth: governments that rely on these carrots eventually face an even bigger stick than if they’d just imposed carbon penalties from the start.
Researchers at Princeton University and UC San Diego modeled how the U.S. energy system evolves under different policy sequences through 2050. They tested scenarios where subsidies lead, penalties lead, or both appear in shifting combinations—mimicking the messy reality of legislation that starts, stops, and restarts as political winds shift. The conclusion is stark: incentives accelerate clean technology deployment, but they don’t force fossil fuels out. Without penalties that make pollution expensive, coal and gas simply persist alongside renewables, and emissions plateau well above climate targets.
The researchers used GCAM-USA, a state-by-state energy and economic model, to simulate all 50 states through mid-century. Some scenarios deployed only subsidies—tax credits for EVs, heat pumps, and renewable electricity. Others used only a carbon price. The most realistic scenarios started with incentives and added penalties after 10 or 20 years of delay, or experimented with incentives that flickered on and off.
“Models have told us what’s economically efficient, but not what’s politically possible. Our goal is to bridge that gap so policymakers can craft strategies that survive real-world politics,” David Victor, a professor at UC San Diego, explains.
Under stable, long-running subsidies, electric vehicle adoption surges by 2030, and renewable electricity grows rapidly. But that momentum doesn’t translate into fossil fuel decline. In some simulations, coal use actually remained higher under subsidy-only plans than under direct carbon pricing, because cheap renewables and cheap coal competed for market share without either being driven out entirely.
The Penalty for Waiting
Delay makes everything harder. If governments wait 20 years to introduce a carbon price after subsidizing clean tech, the penalty required in 2050 jumps by 40 percent compared to leading with penalties from the beginning. This creates a political trap: the longer the wait, the more visible and painful the eventual carbon price becomes. That delay also forces massive reliance on speculative carbon dioxide removal technologies that haven’t been proven at national scale.
Policy consistency matters almost as much as policy type. When incentives remain predictable, investment accelerates and emissions drop 32 percent by 2030. When subsidies start, stop, and restart—a realistic scenario given shifting political control—emissions fall only 24 percent. Worse, that inconsistency means the carbon price eventually needed becomes 67 percent larger than it would have been under a straightforward penalty from day one.
This isn’t a marginal difference. The study finds that only scenarios pairing durable incentives with eventual penalties reach 80 percent reductions in energy-related carbon emissions by mid-century. Subsidies alone stall out, leaving the energy system only partially transformed and still heavily dependent on fossil fuels.
Building the New Without Dismantling the Old
Subsidies change the landscape. You can picture it: highways humming with electric vehicles, sprawling solar farms across the Southwest, battery factories rising in the Rust Belt. But those visible symbols of progress don’t automatically shut down coal plants or strand oil refineries. The study shows that carrots make clean technologies cheaper, but they don’t make fossil fuels more expensive. Without that price signal, incumbent industries simply coexist with newcomers rather than retreating.
The researchers describe this as a global policy experiment unfolding in real time. The United States has leaned heavily on subsidies through the Inflation Reduction Act, with no economy-wide carbon price. Europe has prioritized emissions penalties. China deploys both simultaneously. Each approach has different political risks and different economic consequences, but the study suggests that any path avoiding penalties will ultimately fail to meet climate targets.
The takeaway is unsettling for policymakers hoping to avoid difficult choices indefinitely. Subsidies buy time, create momentum, and build political coalitions around clean energy. But they don’t finish the job. Eventually, someone has to shrink fossil fuel industries deliberately, and waiting longer only makes that reckoning more expensive and more disruptive.
Nature Climate Change: 10.1038/s41558-025-02497-6
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