Tags: wind | power | tax | credit

$6 Billion Wind Power Subsidy Expires; Battle Looms to Extend It

Image: $6 Billion Wind Power Subsidy Expires; Battle Looms to Extend It

Tuesday, 31 Dec 2013 03:34 PM

By Jennifer G. Hickey

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Members of Congress departed Washington without saving the wind power industry's Production Tax Credit from its scheduled year-end expiration, but supporters and opponents both signaled a coming battle over whether to extend the green-energy subsidy.

The wind Production Tax Credit, first introduced in 1992, provides a per-kilowatt-hour tax credit for electricity generated by wind turbines to encourage investment in this renewable energy resource.

Ten senators — nine Republicans and Democrat Joe Manchin — sent a letter before the congressional recess to Senate Finance Chairman Max Baucus and Ranking Republican Orrin Hatch seeking an end to the wind PTC.

"Our nation's energy policy must make economic sense for taxpayers and not manipulate markets," the senators wrote. "Continuation of the wind PTC not only picks winners and losers, it is distorting our energy markets, and it's past time to end a temporary tax credit that was put into law in 1992.

"After more than 20 years, and tens of billions of taxpayer dollars, it's time to let the wind PTC expire and continue to invest in new technologies."

Lining up on the other side were 24 senators — 22 Democrats and two liberal independents — who wrote to Baucus and Hatch asking for an extension of the tax credits, saying, "They remain critical to addressing the market failures that prevent cost-effective, market-ready technologies from being deployed to their full potential."

"It is imperative that these key clean-energy tax incentives are renewed as soon as possible" because they have "helped scale up production and drive down the cost of clean energy technologies."

Congress extended the tax credit after it expired several times in recent years. The PTC was allowed to expire in 2012, but was resurrected when a one-year extension was attached to the American Taxpayer Relief Act of 2012.

It was also allowed expire at the end of 2000, 2002, and 2004, but was resurrected in subsequent legislative actions.

Critics say the subsidies have been ineffective and distort the market.

"It is not the role of the federal government to pick winners and losers in the energy sector, and in fact this does more to distort the energy market than it does to increase competition and create new jobs," Nicolas Loris, a fellow at the Heritage Foundation, told Newsmax.

Travis Fisher of the Institute for Energy Research said the wind tax credit "has artificially propped up the wind industry at the expense of taxpayers."

"It is inherently unfair because it is a very targeted tax credit that basically favors one particular energy source. Furthermore, the subsidy has not managed, as it was intended, to create a sustainable industry," Fisher told Newsmax.

"No one is breathing a sigh of relief because we do not know yet what Congress will do when it comes back in January."

If the extension were granted, the Joint Committee on Taxation estimates the annual cost in lost revenue would be $6.1 billion.

Republicans see the credit as a waste of taxpayer money during fiscally tough times.

"Congress is struggling to find $63 billion to spend in the budget agreement, when all we have to do is get rid of the wasteful wind Production Tax Credit," said Republican Sen. Lamar Alexander, of Tennessee.

"For the next 10 years, extending the tax credit one year at a time could cost $60 billion or more," he said. "Using the wind production tax credit to pay for all or part of the budget agreement would do this country more good than extending this subsidy for expensive, low-quality wind electricity ever could."

Fisher told Newsmax that when the tax has been allowed to expire, wind production in the following year has declined, reflecting the extent to which the industry depends on the subsidy.

"Letting the PTC expire will allow us to see if wind power can be a self-sustaining industry. But no one will know until it is allowed to stand on its own," Fisher added.

When the PTC was introduced in 1992, it was meant to be a temporary measure designed to support emerging energy sources, primarily wind power.

The short-term investment tax credit has morphed into a long-term subsidy despite the continuing growth of wind power. As the American Wind Energy Association notes on its website, wind energy "growth was 30 percent on average for the past five years, helping the United States serve as a major market for wind energy globally."

Loris said: "Wind energy exists primarily as a consequence of the subsidy, and their business model is based on getting those subsidies. There is only one way to find out if the industry is sustainable, and that is to let the PTC expire and let wind energy stand on its own."

The PTC is not the only subsidy at the disposal of wind producers. Included in the American Recovery and Reinvestment Act passed in 2009, wind producers were afforded the choice of receiving the Investment Tax Credit, which allows them to deduct 30 percent of the investment cost on their taxes, rather than the PTC.

The Institute for Energy Research compared the subsidization of various energy sectors and calculated that subsidies for renewables grossly outmatched those for oil, gas, and nuclear.

Loris advocates eliminating all subsidies, including those to the oil and gas industry, in favor of instituting broader tax reform, including an across-the-board lowering of tax rates.

As in years past, outside groups are weighing in heavily on the PTC's fate.

The major supporter of the PTC extension and additional subsidies for renewable fuels is the AWEA. According to OpenSecrets.org, the group spent $2.4 million on lobbying efforts in 2012 and $1.5 million in 2011.

In early December, the American Energy Alliance launched a comprehensive lobbying campaign against the extension, which included targeted advertising and background briefings for members of Congress and their staffs.

"For decades, American taxpayers have bankrolled the wind industry, and the time has long passed to allow the PTC to run its course," AEA President Thomas Pyle said. "This tax credit was always intended to be temporary, but Big Wind has grown addicted to taxpayer subsidies, spending millions year after year to extend and even expand this unnecessary and expensive taxpayer giveaway."

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