Getting the Facts Right on Wind Energy
By Christine Harbin
The main federal tax break for wind energy, the production tax credit (PTC), is set to expire in at the end of next month, and the debate over whether Congress should extend it is far from settled. With the wind lobby out in full force in Washington right now, it’s important to separate the fact from the fiction on this wasteful handout. In his recent column on the issue, an LA Times editorial by Michael Hiltzik gets many of the facts wrong.
To begin, Hiltzik claims that the wind tax credit costs about $1 billion a year. In reality, the size of the carve-out for wind is typically $5 billion each year. The extension plan that recently came out of the Senate Finance Committee would cost even more—$12.1 billion in 2013 alone.
Hiltzik also claims that coal and nuclear get “subsidies that dwarf all others,” but that’s not true either. To the contrary, the wind and solar energy industries get the most federal subsidies per megawatt hour. According to the Energy Information Administration, government support per megawatt hour for natural gas, oil, and coal is 64 cents; nuclear $3.14; wind $56.29; and solar $775.64.
In addition to subsidies at the federal level, wind production gets financial help from state governments too. A majority of states enforce a renewable portfolio standard (RPS), meaning that utilities are required by law to buy a certain percentage of their electricity from renewable sources like wind. They’re literally forced to buy it.
In addition, Hiltzik misrepresents our energy policy position at Americans for Prosperity. Our prescription is to eliminate all targeted loopholes in the tax code including those for fossil fuels and nuclear energy. The United States can’t have a truly level playing field unless Washington gets rid of all special exemptions for all energies.
In their place, the government should allow all energy companies to recover their R&D costs by taxing their net income. This would encourage companies to invest in developing energy technologies—but without picking winners and losers. It’s important to note that proper expensing for business costs is not a subsidy, which is a point that is too-often lost in the debate over tax provisions.
To be specific, AFP supports cutting two specific tax credits—the Marginal Well and Enhanced Oil Recovery credits—for conventional energy sources. These loopholes encourage drilling wells that have little oil left or development that is not economically viable. The cost of obtaining oil from marginal wells often exceeds the market price for that oil, so it makes little economic sense to procure it, and makes even less sense for taxpayers to pay drillers to procure it. (For more on this point, check out my recent piece in The Hill, explaining that a pro-growth tax policy would be a better platform for energy policy.)
These credits and the wind production tax credit feature some of the same problems. First, instead of allowing for legitimate cost recovery, both simply encourage higher levels of production. Second, their eligibility requirements are too narrow in scope to be enjoyed by anyone outside of the targeted industry.
Considering that we’ve seen little return on the government’s so-called “investment” in wind energy, it’s no wonder that the extension effort is facing opposition. And by no means is Americans for Prosperity the sole opponent—far from it. Last week, a diverse coalition of 88 organizations, representing millions of citizens, joined AFP in calling on Congress to allow the wind production tax credit to expire. The partner organizations differ in size and scope, but they all agree that it’s time to pull the plug on handouts to Big Wind.
Developing new energy technologies is a worthy goal, but Washington’s long-time policy of handouts and tax carve outs simply isn’t working. Instead of producing energy solutions that can make it in the market place, we’re left with failed green energy boondoggles (see: Solyndra, Beacon Power, Ener1, and most recently A123 Systems). We’re not any closer to our energy goals.
Americans would be overwhelmingly better off if U.S. energy policy were based on market mechanisms, not handouts for special interests. We should encourage a portfolio of energies that are strong and profitable independent of government subsidy, not those that rely on a leg-up from government. Congress should allow the wind production tax credit to expire at the end of the year, as scheduled.