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Energy Subsidies and Big Wind: Sen. Alexander Sets the Record Straight (renewables 50x that of fossil fuels)

Editor note: The full text of the May 18 floor remarks of Senator Lamar Alexander (R. Tenn.) as reprinted in the Congressional Record last week. Subtitles have been added.

“So I ask the question: If wind has all these drawbacks, is a mature technology, and receives subsidies greater than any other form of energy per unit of actual energy produced, why are we subsidizing it with billions of dollars and not including it in [the energy subsidy] debate? Why are we talking about Big Oil and not talking about Big Wind?”

“We have been debating tax subsidies to the big oil companies. The bill proposed by the senator from New Jersey would have limited it to just the big five oil companies even though many of the tax breaks or tax credits or deductions they receive are the same tax credits that every other company may take– Starbucks, Microsoft, Caterpillar, Google, and Hollywood film producers, for example. Many of the other credits look a lot like the [research and development] tax credit or other tax credits all American businesses may receive.

Well, I am one Senator who is very intrigued with the idea of looking at all of the tax breaks in the tax code. There are currently about $1.2 trillion a year in what we call tax expenditures, and those are intended to be for tax breaks we think are desirable. I am ready to look at all of them and use the money to reduce the tax rate and/or reduce the Federal debt. But if we are going to talk about energy subsidies — tax subsidies — we ought to talk about all energy subsidies.

Renewables vs. Fossil-energy Subsidies

Senator John Cornyn of Texas has asked the Congressional Research Service to do just this. It is an excellent study, and I commend Senator Cornyn for asking for it. This is some of what it finds: According to the report, fossil fuels contributed about 78 percent of our energy production in 2009 and received about 13 percent of the Federal tax support for energy.

However, during that same time 10.6 percent of our energy production was from renewables and 77.4 percent of our energy tax subsidies went to renewables. So if we are to compare the subsidy per unit of energy, the estimated federal support per million BTUs [or British Thermal Units] of fossil fuels was 4 cents, while support for renewables was $1.97 per million BTUs.

So, federal subsidies for renewables are almost 50 times as great per unit of energy as federal subsidies for fossil fuels. [But] this would be distorted because hydroelectric power is included within renewables. Most people think of renewables as ethanol, solar, or wind and those are the renewables that actually get the subsidies, while hydroelectric does not.

So, the federal taxpayer support for renewable energy is at least 50 times as great per unit of energy as compared with fossil fuel energy. So why aren’t we including subsidies for all renewables in our debate? Specifically, if we are talking about ‘Big Oil,’ why don’t we talk about ‘Big Wind?’ The Senate seems an appropriate place to talk about ‘Big Wind.’

The Energy Policy Act of 1992 created what is called the production tax credit for energy produced using renewable resources. Most of this money has gone to subsidize ‘Big Wind.’ It is a policy that was supposed to last a few years. It has lasted two decades.

Today, the production tax credit for wind gives 2.1 cents for every kilowatt hour of wind electricity produced by a wind turbine during the first 10 years of operation. Let’s put this into a context that is current. The new Shepherd’s Flat Wind Farm in Oregon will have 338 of these huge wind turbines, producing enough power to run approximately 250,000 homes and will cost the American taxpayer about $57 million a year in subsidies for that electricity produced. If we allocated the tax credit per home, taxpayers will be paying $2,300 over the next 10 years for each of the homes served by the Shepherd’s Flat Wind Farm in Oregon.

This doesn’t even take into account the fact that $1.3 billion in federal loan guarantees to this project means Big Wind will have its risk of default also financed by the taxpayer. Fossil fuel companies don’t have that advantage. Nuclear power companies don’t have that advantage, even though their electricity is completely clean — no sulfur, no nitrogen, no mercury, no carbon. If, like nuclear or fossil loan guarantees do, the wind farm in Oregon had to pay the risk of default up front as a fee, it would cost another $130 million. That is money out of the pockets of taxpayers.

The total cost of the wind production tax credit over the next 10 years will cost the American taxpayers more than $26 billion. Let me say that again. American taxpayers are subsidizing Big Wind over the next 10 years by more than $26 billion with one tax credit. In fact, the tax breaks for the five big oil companies we have been debating on the Senate floor this week actually cost less than all of the money we give to big wind. The tax breaks for the five big oil companies amount to about $21 billion over 10 years.

According to the Energy Information Administration in 2007, big wind received an $18.82 subsidy per megawatt hour — 25 times as much per megawatt hour as subsidies for all other forms of electricity combined. But wind is about the least efficient means of energy production we have. It accounts for just about 2 percent of our electricity. It is available only when the wind blows, which is about one-third of the time. The Tennessee Valley Authority says it is reliable even less than that, meaning we can have it when we need it only about 12 to15 percent of the time.

Other Windpower Problems

Wind farms take up a huge amount of space. Turbines are 50 stories high. Their flashing lights can be seen for 20 miles. An unbroken line of turbines along the 2,178-mile Appalachian Trail would produce no more electricity than four nuclear reactors on 4 square miles of land.

Wind is generally the strongest–and land available–where the electricity isn’t actually needed. So we have thousands of miles of new transmission lines proposed to get the energy from where it is produced to where it needs to go. Those often go through conservation areas, and according to the National Academy of Sciences, wind power is more expensive than other forms of electricity, such as coal, nuclear, biomass, geothermal, and natural gas.

We haven’t even talked about the fact these wind turbines only last about 25 years. The question is: Who is going to take them down? Wind farms also kill as many as 275,000 birds each year, according to the American Bird Conservancy. They can interfere with radar systems, and many who live near them say they are very noisy.

So I ask the question: If wind has all these drawbacks, is a mature technology, and receives subsidies greater than any other form of energy per unit of actual energy produced, why are we subsidizing it with billions of dollars and not including it in this debate? Why are we talking about Big Oil and not talking about Big Wind?

I believe there are appropriate uses of temporary incentives and subsidies to help jump-start innovation and the development of new technology — such as jump-starting electric cars, or natural gas fleets of trucks, or loan guarantees for nuclear power plants and other forms of clean energy — as long as these are short term. I believe research and development is an appropriate role for the federal government whether it is in recycling used nuclear fuel or finding alternative biofuels made from crops we don’t eat. I believe it is entirely appropriate for there to be research for offshore wind farms, which we don’t know as much about and which might actually prove to be a useful supplement in the Northeast. But my point is, if we are going to debate subsidies to Big Oil, we ought to be debating all the energy subsidies including those to Big Wind.

Republicans vs. Democrats

There is a difference between the Republican plan and the Democratic plan for $4 gasoline and high energy prices. The Democratic cure for high prices is basically to raise the price. They want to tax energy more, but that makes energy cost more. Republicans want to find more American energy and use less energy. We might sum it up this way: Republicans want to find more and use less; Democrats want to find less and tax more.

The Democratic plan, according to Senator Schumer of New York, was never intended to talk about lowering gas prices. Senator Reid agreed, Senator Baucus agreed, Senator Landrieu agreed, and Senator Begich agreed, but why aren’t we talking about trying to find a way to lower gasoline prices when it is $4 a gallon and going up?

The Republican plan is very specific: Find more American oil and more American natural gas. We can find that offshore where 30 percent of our domestic oil and 25 percent of our natural gas is produced. We can find it on Federal lands, and we can find it in Alaska.

The other part of our equation is to use less. We have some agreement with the Obama administration on some of these ideas. There are a number of them, such as jump-starting electric cars. Senator Merkley and I have a bill that is before the Energy Committee tomorrow to do just that. I believe electrifying our cars and trucks is the single best way to reduce our dependence on foreign oil. There is legislation to jump-start natural gas for trucks, biofuels from crops we don’t eat, and fuel efficiency. All these are various ways to use less.

Senators Thune and Barrasso have performed a service by setting the record straight to show that the United States produces a lot of oil. We are actually the third largest oil producer in the world. So I ask this question: If less Libyan oil can raise gasoline prices — which it did — then shouldn’t more American oil help lower gasoline prices? At least, for every dollar of American oil we produce, it is one less dollar we have to send overseas for foreign oil.

Conclusion

So, Madam President, the Republican plan is to find more American oil and natural gas and to use less. My suggestion is, if we are going to be talking about tax subsidies for Big Oil, let’s talk about tax subsidies for all energy. The Senate floor seems an especially appropriate place, if we are going to talk about Big Oil, to also talk about tax subsidies for Big Wind.”

13 comments

1 Jon Boone { 05.23.11 at 9:08 am }

Remarkable remarks, to be sure. And the Senator’s gist is right on target. But he remains far too generous about wind. The Shepherd’s Flat wind mess, with its 338 massive energy sputtering machines, could NOT functionally “serve” to power 250,000 homes–so why imply it could? Saying that its installed capacity could provide electricity for that many homes misleads the public and the muddled media into thinking this is what would happen–when in reality NONE of those homes could be serviced by Shepherd’s Flat in terms of today’s standards of reliability and performance. And therefore the $2300 annual subsidy for each home is vastly understated.

And then there’s this quote: “I believe it is entirely appropriate for there to be research for offshore wind farms, which we don’t know as much about and which might actually prove to be a useful supplement in the Northeast.” How awful. This is clearly a pandering political ploy to get Democratic support for his proposal while sticking it to Nantucket Sound and the people of New England. The Senator has no evidence to support his “belief” that offshore wind–read Cape Wind–would be any less of a scam than onshore wind, yet seems willing to continue letting the public provide for both research AND development dollars for this benighted project.

Senator Alexander does great credit generally to more informed discourse vis a vis enlightened energy policy. But he should work harder to better understand why wind is dysfunctional to a society seeking reliable, secure, affordable electricity.

2 Energy and Environment News { 05.23.11 at 9:35 am }

[...] Sen. Lamar Alexander Sets the Record Straight on Wind Subsidies MasterResource.org, 23 May 2011 [...]

3 rbradley { 05.23.11 at 9:35 am }

Good comments Jon.

Wind is not politically ‘toxic’ like cap-and-trade is–but cap-and-trade was once the rage, so windpower’s days in the political sun could be numbered.

4 Ray { 05.23.11 at 1:13 pm }

Only a statist politician would call not taxing you a “tax expenditure”. They evidently believe that everything you earn belongs to the state and if you are allowed to keep some of it that costs the state.

5 Jon Boone { 05.23.11 at 2:23 pm }

As others have pointed out, renewables, led by the dumb and dim of wind, are the backdoor approach in lieu of cap-and-trade. The intellectual heirs of Ken Lay–G.W. Bush, Gore, Obama, Pelosi, Kerry, Grassley, Immelt–don’t have to mention cap-and-trade; they can instead push renewables to achieve perhaps a better end–from their point of view….

Wind is the electricity sector’s version of corn ethanol–and in recent years has received even more subsidy dollars. As Senator Alexander rightly points out, wind also has a lot of collateral costs well beyond its own capital funding requirements. The staggering costs of building dedicated wind transmission and voltage regulation–in the name of creating a smart grid–must also be accounted for. Makework for engineers and lots of low hanging fruit for uncreative corporations.

The stealth campaign to replace cap-and-trade with renewables has potential costs that may dwarf those contemplated for cap-and-trade. Ecomagination, indeed!

A scam by any other name still smells as malodorous

6 Bill Batt { 05.23.11 at 2:49 pm }

Senator Alexander was elected to the office of governor as a “Reagan” Republican. Since then as he ran for the Presidency and elected to the Senate, he has drifted toward “Rockefeller” Republican and a “liberal” leaning. The “truth-telling” MSM is very powerful in National politics and the US Senate.

7 uvdiv { 05.23.11 at 4:58 pm }

I agree with the senator’s conclusions, but his research is very much wanting.

Alexander’s 2.1 c/kWh in federal production subsidies are the least of the problems. Electricity production costs are in the range of 5 c/kWh, which makes this subsidy “only” ~40% extra. This hardly explains why wind corporations are selling electricity as high as 18.7 c/kWh (Cape Wind [1]), even up to 24.4 c/kWh (Deepwater Wind [2]) — 300-400% over market price!

In fact the elephant in the room is neither federal nor a production subsidy. Where utilities are building absurdly-expensive boondogles, it not because of federal, but state-level regulation; and not through direct subsidy, but a mandate. The main policy is the purchase mandate (“clean energy standard” is a euphemism): a dirigisme where the state directly orders the utilities to buy electricity from specific providers, usually wind or solar (at far-above market cost). The DoE lists state-level mandates at [3]; there’s also severe danger of a national-level mandate [4]. The subsidies Americans should really fear are the indirect costs of these purchase mandates, not the comparitively-trivial production credits.

Some commentators (like Strassel [4]) think this is a political choice. Instead of a politically-vulnerable energy tax (carbon tax, cap and trade) or a direct subsidy (production tax credit), this is an indirect form of industry support which inspires less revulsion. And unlike taxes and subsidies, the costs are passed onto the private sector (onto utilities, passed through to ratepayers) rather than taxpayers. (For even further obfuscation, some states (California) actually make the resulting power purchase prices — from providers to utilities — confidential. If that’s not a betrayal of public service, I don’t know what is.)

The costs are clearer in Europe, where government intervention consists mostly of production subsidies. (There’s a EU-wide carbon cap also, but the prices are very low). UK production subsidies are 7.6 or 16.0 USD cents/kWh for commercial-sized wind turbines [5]. German subsides are 12.7 USD c/kWh for onshore and 21.1 USD c/kWh for offshore wind [6]. In the Netherlands it is 16.6 USD c/kWh for onshore, and 26.2 USD c/kWh offshore [7]. The US federal production subsidy of 2.1 c/kWh is paltry, and clearly is not the main source of government support to the wind industry. I believe it is the purchase mandates.

[1] http://en.wikipedia.org/wiki/Cape_Wind#Approval_process_and_current_status

[2] http://en.wikipedia.org/wiki/Deepwater_Wind

[3] [DoE] States with Renewable Portfolio Standards

[4] [WSJ] The president’s plans for “clean energy standards” amount to carbon controls by other means

[5] http://www.fitariffs.co.uk/eligible/levels/

[6] http://www.gwec.net/index.php?id=129

[7] http://www.energy.eu/#Feedin

8 Jon Boone { 05.23.11 at 5:31 pm }

You make a good case, udvid. The production tax credits ARE a relatively small part of the overall subsidies for wind in the US. But so is the price wind receives for its output, even with purchase mandates. For corporations with a lot of taxable (discretionary) income, however, wind’s capital depreciation schedule seems the real driver, delivering substantial income over time from revenue otherwise “lost” to taxes. As Glenn Schleede has shown on MR and in a number of other papers, the combination of subsidies–PTCs or ITCs or direct cash payments equal to 30% of all capital costs, RECs, purchase mandates, state RPS, capital depreciation schedules, along with a host of arcane but important state and local tax “forgiveness” provisions–provide ample material for good energy tax accountants to transmute into gold. No one does this better than GE or Florida Power and Light, which for some years have paid zero dollars of federal income tax, despite annual revenues in the billions. Nice “work” if one can lobby successfully for it.

Look for the equity partnerships enabling the wind project near you….

9 Chris { 05.23.11 at 7:28 pm }

You guys are funny. Nuclear and fossil don’t receive any loan guarantees?!Hahaha! At least you guys brought some humor to the usual pitiful discussions on here where you guys just try to reinforce the others’ misinformation and weave crazy conspiracy theories.

10 Jon Boone { 05.23.11 at 9:27 pm }

Chris:
From the tone of your comments you seem to be suggesting that all energy suppliers are subsidized. Which is true, as far as it goes. What the Senator said in his speech, however, reflects reality that your remarks seem to miss. Yes, nuclear and fossil fuels receive a good deal of subsidy. But not to my knowledge anything approaching loan guarantees at the scale of the wind sleaze at Shepherd’s Flat. Indeed, the public subsidies for wind on a per kWh production basis are 26 times those for fossil fuels and about 16 times that for nuclear.

Your problem, ground as it seems to be in support of pixie dust, is that subsidy for conventional suppliers helps grease the way for real power production–while subsidy for renewables like wind incentivizes only pretentious, highly sputtering energy output, not modern power capacity. I don’t particularly mind R&D for the 747, although there should be term limits, as the Senator suggests. I do mind any R&D for gliders, particularly if the goal is to provide timely transport for millions of people….

So let’s hear a Tinker Bell thunderclap to resurrect wind from the tomb the steam engine consigned it centuries ago. Our “conspiratorial” unbelief remains undaunted…. And grounded in reality.

11 rbradley { 05.26.11 at 7:37 am }

Does Sen. Alexander really get it? See his support for government support for the electric car.

http://www.torquenews.com/397/senator-alexander-unused-electricity-our-greatest-national-resource

12 Natural Gas Rent-Seeking | Institute for Energy Research { 06.27.11 at 5:02 pm }

[...] special favor, and removing the heavy subsidies now enjoyed by the renewable energy industry (some 50 times that received by the fossil fuels per unit of energy produced), is a step towards establishing a [...]

13 Policies Concerning Subsidies for Wind versus Fossil Fuels « seannyklavs { 02.09.13 at 1:50 am }

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