Wind Tax Credit Advocacy: Blowing Smoke
by William O'Keefe
December 31, 2012
A number of the comments supporting extension of the wind production tax credit are based on half truths, illusions, and special interest politics.
One argument is that eliminating it will cost 37,000 jobs or more. There are two flaws in this argument. First, it assumes that there is no difference between jobs created by inefficient subsidies and more efficient allocation of resources. There is literature demonstrating that green subsidies misallocate resources that cost more jobs than they create. A study conducted by Spain’s Universidad Rey Juan Carlos concluded “ we find that for every renewable energy job that the state manages to finance, Spain’s experience…reveals with high confidence…that the U.S. should expect a loss of at least 2.2 jobs on average… .” Second, most of the jobs created by wind energy are in the manufacture of turbine blades and steel for wind towers, most of which are imported.
Another line of argument is that the wind subsidy pales in comparison to subsidies for the oil industry. There are two flaws with this argument, as well. First, it is an inaccurate statement. According to a Wall Street Journal article, in 2010, “The natural gas and oil industry received $2.8 billion in total subsidies. …The biggest winner was wind, with $5 billion. Between 2007 and 2010, total energy subsidies rose 108%, but solar’s subsidies increased six-fold and wind’s were up 10-fold”. Second, the subsidies attributed to oil and gas are tax incentives available to all business—manufacturing tax credit, protection against double taxation, and provisions for expensing operating expenses.
Another Wall Street Journal article reported that according to DOE, “the costs of wind subsidies are extraordinarily high--$52.48 per one million watt hours generated…By contrast the subsidies for generating the same amount of electricity from nuclear power are $3.10, from hydropower 84 cents, from coal 64 cents, and from natural gas 63 cents”. Clearly, subsidies for wind are distorting investments in more cost-effective power generation.
Not surprising, the growth in wind subsidies has blunted incentives for technological breakthroughs and cost efficiencies. DOE in its 2009 Wild Technology Market Report found that average wind power costs were high than they were in 1994.
A major justification for renewable subsidies has been the push to reduce greenhouse gas emissions, primarily CO2. But, the amount of power generated by all renewables is exceedingly small and will remain so for decades to come. At the same time, thanks to the boom in natural gas, CO2 emissions in the US have been declining and according to EIA will not return to 2005 levels before 2035. So, emission reductions are being achieved without large subsidies.
Renewable subsidies have failed to achieve their objectives and have only served to enable rent-seekers to enrich themselves by burdening taxpayers with unnecessary costs. This is clearly demonstrated in the EU experience. Subsidies create and addiction and rarely sunset. This one should fade away at the end of this day.