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Reason Foundation

Itís Time to Let the Wind Energy Production Tax Credit Expire

Victor Nava
December 12, 2013, 12:25pm

For the eighth time since its inception as part of the Energy Policy Act of 1992, the federal wind Production Tax Credit (PTC) is set to expire at the year’s end. While it has been extended every other time it has faced expiration, this year with Congress more focused on their latest budget battle it seems likely that Congress will allow the wind energy PTC to expire at the end of 2013. Ending the wind PTC, which was never intended to be permanent in the first place, will not only save taxpayers billions, but it will also allow the country to focus on energy innovation rather than continuing to subsidize an inefficient technology which in recent years has only shown very marginal improvements in quality.

The wind energy PTC currently subsidizes wind energy production at a rate of 2.3 cents for every kilowatt-hour of energy produced. Unlike other subsidies which decrease over time, as the technology improves, the current rate of wind energy subsidization is actually higher than the 1.5 cents/kilowatt-hour subsidy back when the program was implemented. Estimates of the cost to taxpayers of extending the wind energy PTC for 1 more year have ranged from $5 billion to $12.1 billion over the next 10 years.

The wind energy industry has also benefitted from state Renewable Portfolio Standards (RPSs) which mandate utility companies to acquire some of their energy from renewable sources. As such, wind has received a double whammy of government support and still can't compete with gas or coal in most places, hence the clamor by the wind cronies for continued subsidies under the PTC.

Writing for the Christian Science Monitor, energy consultant and blogger Geoffrey Styles explains that the subsidies have done as much as they possibly can to prop up the wind industry, and it’s time to end them. They’ve successfully increased wind energy production from under 2000 megawatts of capacity in 1992, to over 60,000 megawatts of capacity today. But the billions in subsidies for wind fail to address the single biggest hurdle standing in the way of wider adoption of the technology, which according to Styles is “its fundamental intermittency and disjunction with typical daily and seasonal electricity demand cycles”—in other words when there’s no wind, there’s no power. This sentiment is echoed by William Korchinski in a 2012 Reason Foundation study.

Critics argue that fossil fuel based energy producers will continue to receive billions in subsidies every year, but in terms of bang for the taxpayers buck renewable energy subsidies are far less efficient—the U.S. is actually paying more for less when it subsidizes renewable energy. In the Wall Street Journal, Bjorn Lomborg explains how fossil fuel subsidies amount to $4 billion per year, while renewable energy is subsidized at more than three times that figure, roughly $14 billion per year. In terms of energy produced, oil and gas added more than 20 times as much new energy output to the US economy as wind power did, and for roughly the same cost to taxpayers. To be clear, neither should be subsidized by taxpayers but fossil fuel subsidies clearly produce more energy at a lower cost.

Our recent Reason Foundation policy brief, “Stimulating Green Electric Dreams: Lobbying, Cronyism and Section 1705 Loan Guarantees”, agrees with Geoffrey Styles point in the Christian Science Monitor that the country should refocus on energy innovation, but subsidies aren’t the best way of achieving that. Since 1973, the Department of Energy has spent $154.7 billion (2012$) on “Energy Research and Development” but we have yet to see a significant energy technology produced that is commercially viable without subsidies. Our brief argues that a more efficient way of promoting innovation would be through a prize system that would only award money on technologies that meet specific energy output criteria. The concept is similar to the X-Prize Oil Cleanup Challenge, in which private philanthropists awarded $1 million dollars to whichever firm or individual could develop the most efficient skimmer technology for cleaning up oil spills. Prizes provide a much better incentive for innovation than blanket tax breaks or subsidies.

Even if the wind energy PTC isn’t extended, last year’s last minute extension of the PTC redefined how projects qualify for the tax credit, so any project that has either started significant work or spent 5% of its budget by year-end could still qualify for the current PTC in 2014. But for the sake of continued energy innovation and reigning in the U.S. budget, let’s hope the wind energy PTC suffers the same fate as the 573,000 birds that’ve had the misfortune of crossing paths with a wind turbine. 

Victor Nava is Research Assistant

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