A Free-Market Energy Blog

Energy Tax Reform: Scrap the Baucus Proposal (Part IV: Negative Wealth Effects)

By Glenn Schleede -- January 22, 2014

[Editor note: This is the final excerpt of a January 15 letter by Mr. Schleede to the Senate Finance Committee concerning the Baucus tax-reform proposal (December 18, 2013). Part I reprinted the executive summary and conclusions; Part II the high cost/low value of windpower. Part III the negative environmental effects of continued subsidization of windpower, including the “cleanliness” standard of the Baucus proposal.]

“Tax breaks and subsidies for wind transfer wealth from ordinary taxpayers and electric customers to “wind farm” owners, electric customers in some states, and the voluntary purchasers of high cost electricity from wind.”

During the past 20 years, a variety of tax breaks and special subsidies for the wind industry have had massive wealth transfer impacts. The proposed production tax credit (PTC) and investment tax credit (ITC) would extend such impact for years into the future. The Committee apparently has ignored the negative impacts of these transfers.

Three examples illustrate the depth of the wealth-transfer problem.

1. Wealth transfer from ordinary taxpayers to “wind farm” owners

Wealth is transferred from the pockets of ordinary taxpayers (and/or their children and grandchildren who inherit the national debt) to the pockets of “wind farm” owners.

This occurs because the PTC or ITC permit “Wind farm” owners to escape tax burden, with the result that ordinary taxpayers who do not enjoy such tax shelters must pick up the burden. During times of deficit spending, tax liability escaped by “wind farm” owners adds to amounts that must be borrowed to cover the deficit and, therefore adds to the huge and growing national debt burden that will fall on our children and grandchildren.

2. Wealth transfer from taxpayers in some states to “wind farm” owners & electric customers in other states

These transfers occur principally when political leaders in some states enact “Renewable Portfolio Standards” (RPS) that require electric distribution companies to provide specified shares of the electricity generated from wind or other renewable sources. Such electricity is almost always higher in cost (and lower in value) than electricity produced by existing conventional energy sources.

Such measures create an artificial, high priced market that is available only to owners of facilities producing electricity from “renewable” energy. The higher cost of this electricity to distribution companies is passed along to electric customers.

Critically important, however, is the fact that the cost of this electricity to distribution companies and their electric customers would be even higher if it were not for the tax breaks received by the companies generating the “renewable” electricity – the costs of which are transferred to ordinary taxpayers.

The practical effect of renewable portfolio standards and tax breaks for wind energy, working together is a wealth transfer from taxpayers across the country to the electric customers in states served by utilities that distribute the “renewable” electricity.

Clearly, senators and congressmen from states without substantial wind generating facilities are voting against the interests of their constituents when they vote FOR wind tax breaks and subsidies. They are endorsing the outward transfer of their constituents’ wealth.

3. Wealth transfer from ordinary taxpayers and electric customers to companies, universities, government agencies, and other organizations that sign up to buy wind power or that buy “Renewable Energy Certificates” (RECs)

Organizations that sign up to “buy” electricity generated from wind or other renewable sources generally do so for one or both of two purposes:

(i) to burnish their environmental or “green” credentials with the public, media, and government officials, or

(ii) to engage in arbitrage.

Those who engage in this activity avoid that part of the true cost of the wind energy that is covered by tax breaks and subsidies since the price they agree to pay when signing a purchase power agreement (PPA) or contracting for RECs is generally lower than it would be if it were not for the tax breaks and subsidies available to the owner of the “wind farm” or other renewable energy facility.

These voluntary purchasers of “green” electricity or RECs benefit from a wealth transfer since the cost of tax break or subsidy is ultimately borne by ordinary taxpayers (or becomes a part of the national debt).

Google recently announced purchases of electricity produced by wind for three of its data centers. Based on the amount of the expected purchases, the tax burden that is shifted to ordinary taxpayers is approximately $350 million.

Google apparently has also benefitted by engaging in arbitrage with its wind power purchases. The transactions permit Google to lock in a fixed price for a long period of time (a hedge) and, in effect, Google is able to trade a low value electricity supply (i.e., intermittent, volatile, unreliable electricity from wind generally produced when least needed) for a much higher value reliable electricity supply for its data centers that is available from the grid whenever needed. [1]

[1] Comment of Ron Promboin (11/1/13) at MasterResource.


  1. Ken Langford  

    Windfarms in Fairbanks and Anchorage Alaska have done little to reduce fossil fuel use or CO2 because both intermittant and unreliable systems are balanced by hydroelectric power. The only benefactors of these systems are the manufacturers and developers.


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