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Wind’s Production Tax Credit: Time to End (new LSU study adds intellectual nails to crony coffin)

“The federal PTC should expire since it has morphed from an ill-designed temporary subsidy for a purportedly ‘infant industry,’ into an inequitable tax hand-out for what is clearly a well-established industry that distorts markets and allows wind to compete unfairly with both conventional generation resources and even other types of renewables.”

- David Dismukes, “Removing Big Wind’s Training Wheels: The Case for Ending the Federal Production Tax Credit,” November 2012.

The federal wind Production Tax Credit (“PTC”), first enacted in 1992[1] to “jump start” a nascent, but promising industry,[2] provides wind producers with a subsidy of $22 per megawatt hour of electricity generated.[3] The PTC has been extended seven times, [4]but is scheduled to expire under current law on December 31, 2012. Extension of the federal wind PTC has become the “stalking horse” in the debate on government’s role in picking energy “winners and losers.”

Although wind advocates proffer several internally inconsistent rationales[5]for continuing the federal wind PTC, a closer examination of compelling facts and data indicates these purported justifications are not about wind’s continued viability without the PTC. Rather, the wind industry’s arguments supporting a continuation of the federal wind PTC simply represent a classic case of “rent seeking” by an established industry seeking to maintain profits through a generous tax subsidy.

This research finds that the federal wind PTC is an inefficient, expensive, and unsustainable policy mechanism for promoting wind that should be allowed to expire in today’s challenging fiscal environment for the following reasons:

· Contrary to popular rhetoric, the wind industry is not an “infant industry” in need of continued training wheels, but one that is comprised of 50,000 megawatts (“MWs”) of nameplate capacity, representing close to a five-fold increase since 2006 and a 1,300 percent increase in riskier merchant wind over the last ten years.

· Renewable portfolio standard (“RPS”) mandates in 30 states and D.C., not the federal PTC, have primarily driven explosive wind development over the past five to eight years, and most significantly, have established a substantial guaranteed long-term market for renewables including wind that is expected to triple by 2030, even without the PTC. Standards & Poor’s recently estimated as much as $150 billion in new renewable energy investment opportunities over the next 10 years, even if the PTC is not renewed, driven in large part by opportunities in wind energy development. Thus, offering billions of dollars in federal tax subsidies to wind generation, in addition to mandated state renewable subsidies, allows wind generators to “double dip,” and reflects a gross waste of limited fiscal resources.

· The federal wind PTC is not needed to ensure an increase in future wind generation. The U.S. Energy Information Administration forecasts that even if the PTC and other incentives are eliminated, renewable generation will still be on track to rise from 500 billion kilowatt-hours in 2011 to approximately 750 billion kilowatt-hours by 2035.

· The “one-size-fits-all” federal wind PTC is an exceptionally inefficient and expensive means of supporting wind generation that fails to recognize the industry’s heterogeneity and operational differences, and grossly wastes limited fiscal resources by over-subsidizing many projects and driving over-development. The congressional Joint Committee on Taxation estimates that a one-year extension of the federal wind PTC will cost taxpayers an astronomical $12.1 billion. The fact that the wind industry may experience a market-driven downward correction in output and employment does not signify some type of policy failure justifying an expense of this nature.

· Over 50 percent of wind capacity is located in only five states; over 75 percent is located in just 11 states. The federal PTC, however, unfairly shifts wind energy development costs from taxpayers in the RPS states to those with little or no wind development, forcing taxpayers across the country to support an industry concentrated in only a few states. In fact, under the inequitable federal PTC, taxpayers in the states without RPS mandates pay approximately 24 percent of the PTC funding, even though they receive no direct benefit.

· The generous federal wind PTC has created distortionary “negative prices” in many regional power markets across the country by perversely incenting wind producers to pay the system to take their unneeded power just so they can collect the subsidy and still make a profit. These PTC-driven market distortions harm reliability by penalizing the conventional generators needed to backstop wind when it does not blow, forcing conventional generators to operate at a loss or not at all. As such, the federal wind PTC subsidy unfairly tilts the playing field in favor of intermittent wind, and disadvantages reliable and essential conventional resources such as natural gas.

· Wind generation has already led to billions in hidden costs for electricity consumers to cover the costs of interconnecting these intermittent, remotely-located resources, and providing backup generation when federally-subsidized wind resources fail to perform.

For all of these reasons it is clear the federal PTC should expire since it has morphed from an ill-designed temporary subsidy for a purportedly “infant industry,” into an inequitable tax hand-out for what is clearly a well-established industry that distorts markets and allows wind to compete unfairly with both conventional generation resources and even other types of renewables.


[1] In 1978, wind subsidies were established under the Public Utility Regulatory Policy Act. The federal PTC increased those subsidies.

[2] Ryan Wiser, Mark Bolinger and Galen Barbose (2007). Using the Federal Production Tax Credit to Build a Durable Market for Wind Power in the United States. Lawrence Berkeley National Laboratory, LBNL-63583, p. 2.

[3] After adjusting for taxes, this equals $34 per MWh.

[4] The federal wind PTC has been extended in 1999, 2002, 2004 , 2005, 2006, 2008 and 2009.

[5] See, for instance, the September 18, 2012 Fox Business interview with American Wind Energy Association CEO Denise Bode.

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Professor David Dismukes is associate director and professor at the Louisiana State University Center for Energy Studies.

5 comments

1 Fossil hypocrisy { 11.02.12 at 7:15 am }

When will the fossil fuel industry get rid of its training wheels? They’ve had them on for a century. Also, the Koch brothers attacking someone for rent-seeking is pretty funny. Wind creating too much competition for your fossil fuel assets? Poor baby…

2 rbradley { 11.02.12 at 8:07 am }

Fossil hypocracy:

First, we post comments like yours to promote the debate. Wish Joe Romm at Climate Progress could take some criticism like we can.

Now to the rebuttal.

The fossil fuel industry was many decades old before the US tax code began the depletion allowance, etc. I discuss that here. The industry has not been and is not government-dependent as is wind, ethanol, and on-grid solar. Free consumer choices make oil, gas, and coal sustainable.

‘Big oil’ tax giveaways (Obama term) is rebuted here.

Renewables get 6x more government subsidy as fossil fuels.

Yes, Charles Koch is a major foe of political capitalism (aka cronyism) and would like to run his businesses without artificial help from government.

3 Jon Boone { 11.02.12 at 8:58 am }

And now there’s the specter of this, cultivated no less by the National Academy of Science: http://tinyurl.com/bgnfdal. Indexing the tax code with carbon usage is lunacy at its highest octane. The renewables PTC will be a chit in a game of tax takeaway no matter who is elected president next week.

4 Charles { 11.02.12 at 10:52 pm }

What is truly depressing are the comments like Fossil Hypocrisy who obviously cannot do the simple mathematics that calculate how useless wind really is. This is predicated on the fact that wind generated power does not replace fossil-fuel generated power by any amount. In Australia we have this head turning exercise where they pretend just because wind farms are putting some electricity into the grids some of the time, then they must be saving fossil-fuel being burnt.

Whether this phenomena is supposed to occur by divine intervention or osmosis or some other spiritual force one can’t be sure, but the liberal/progressive mind somehow is totally convinced that a coal fired generator will turn off its plant while the wind is blowing, and then turn it back on again when the wind stops. Small details like how this is physically possible creates no alarm whatsoever as their sanctimonious know-all attitude is supported by wind farm owners who assure them they are saving millions of tonnes of CO2 from being emitted to the atmosphere (and they have no reason to lie do they?).

Consequently, rather than grasp onto logic we see a desperate race to ignore any factual data that might conflict their precious ideological viewpoint, no matter that all other electricity consumers are forced to pay for their delusion.

One can only hope they will one day be able to ideologically afford the $5 calculator that tells them how so far off reality they are by supporting these noxious windfarms that are ruining our landscapes and enriching those they actually most despise, the corporate rent-seekers

5 rbradley { 11.03.12 at 7:04 pm }

Charles:

One of the big things we are up against with the mentality of ‘Fossil fuel hypocracy’ is the superstorm of emotion and an anti-industrial agenda.

Scholarship is in short supply. But we just have to keep our patience and stay on argument.

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