End the Wind Production Tax Credit

Congress must force the wind industry to grow up by ending its inefficient subsidies.

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Daniel Kish is senior vice president at the Institute for Energy Research.

As Congress and President Obama negotiate over how to deal with the "fiscal cliff," one important issue is whether or not to continue the wind production tax credit. This credit was created 20 years ago to help wind try to compete with affordable and reliable source of electricity generation such as coal, natural gas, and hydropower. Despite 35 years of subsidies, the wind industry claims they still need help from the taxpayer. But this begs the question—when will enough ever be enough for the wind industry? Twenty years is more than enough for the wind industry to stand on its own.

Even before the credit was created in 1992, wind promoters were claiming that the wind industry just needed a little leg up and then it would be low-cost and self-sufficient. In 1986, a representative of the American Wind Energy Association testified before Congress, "The U.S. wind industry has ... demonstrated reliability and performance levels that make them very competitive. It has come to the point that the California Energy Commission has predicted windpower will be that State's lowest cost source of energy in the 1990s, beating out even large-scale hydro."

[See a collection of political cartoons on energy policy.]

Christopher Flavin, a prominent wind promoter and president emeritus of the Worldwatch Institute, claimed in 1985, "Although wind farms still depend on tax credits, they are likely to be economical without this support within a few years."

Persuaded by these claims, the Congress enacted the tax credit in 1992 obviously hoping that wind would become self-sufficient and not reliant on the U.S. taxpayer. That has not come to pass and the wind lobby is back in Washington, D.C. with its hand out. The law is fairly simple: it pays wind producers 2.2c per kilowatt hour for their electricity, whether the electricity is necessary or not. In some cases, that is close to the actual wholesale price of electricity. Here are a few claims from the Association's promotional materials urging Congress to extend the tax credit:

[See a collection of political cartoons on the fiscal cliff.]

Claim: "America needs a secure and diverse supply of homegrown energy resources to power the nation. We also need to put more people back to work. Wind energy delivers in both of these areas."

Reality: Wind produces electricity and America already has a secure and diverse supply of homegrown energy. In 2011, 94 percent of electricity in the United States was generated by coal, natural gas, nuclear, and hydropower—all of which are homegrown, plentiful and affordable. We have the largest coal supplies in the world, are the world's largest producer of natural gas, and invented nuclear power. Very few things in America are more homegrown than our electricity supplies.

The claim that wind puts people back to work is also flawed. Any activity, if it receives enough tax dollars will "put more people back to work." Millions of people could be back to work if the federal government gave construction companies tax breaks for hiring people to dig trenches instead of using backhoes and exactors or banned the use of modern farm equipment.   

Claim: "The federal Production Tax Credit (PTC) is an effective tool to keep electricity rates low and encourage development of proven renewable energy projects."

[Read the U.S. News Debate: Should the Government Invest in Green Energy?]

Reality: When the wind lobby worked to create the tax credit, they were ingenious. Instead of structuring it to increase electricity rates, they structured it to create greater liabilities for taxpayers. By structuring it as a lavish tax credit, the costs are effectively hidden from electricity ratepayers. This allows the wind lobby to claim that it "is an effective tool to keep electricity rates low." And remember, these are not "deductions" that most Americans are familiar with; they're "credits," a dollar for dollar reduction in tax obligations of some huge corporations.

This does not mean that the tax credit is inexpensive. A one-year extension will cost $12 billion because it is guaranteed for 10 years of payout. But, most importantly, those costs are hidden from electricity ratepayers and get lumped together with trillions of dollars in the federal budget.

Claim: "With the threat of the PTC's expiration, wind project developers are not making plans in the U.S. and American manufacturers are not receiving orders. Job layoffs have started already. The wind industry is facing the recurrence of the boom-bust cycle it has seen in previous years when the PTC was allowed to expire. In the years following expiration, installations dropped between 73 and 93 percent, with corresponding job losses."

[See a collection of political cartoons on Congress.]

Reality: The Association's claims are correct and they show why the tax credit should end. According to wind lobby itself, the wind industry is dependent on the U.S. taxpayer. This country's policy should not promote businesses that are unnecessary that rely on the taxpayers, but should instead encourage taxpaying businesses that win in the market via self-sufficiency. Few Americans think that it was a good idea when Congress allowed financial institutions to subsidize their losses by relying on the American taxpayer through bailouts. Relying on the taxpayer was a bad idea for Wall Street and it's a bad idea for the wind industry.

Instead of continuing these inefficient subsidies, it's time that Congress allowed the wind industry to grow up by ending the wind production tax credit. We don't need their energy, and we can't afford their handouts, and they do nothing for our national energy security. It's time we stop pretending otherwise.

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