Congressional Republicans this past week scuttled an effort to extend the production tax credit (PTC) for wind energy as part of a bill that renews Pres. Obama’s payroll tax cut and unemployment benefits extension.
Both Democrats and Republicans want economic growth and development—just ask any one or the other any time. It’s abundantly clear that they have irreconcilable differences as to just what kind of growth is good growth, as well as how best to go about fostering it in the current economic and social environment, however.
The wind energy PTC has been a boon to a US market and industry going through youthful growing pains. It’s helped attract billions of dollars of investment; helped create many thousands of good jobs in an emerging industry that’s going to prove vital in the decades ahead; yielded substantial avoidance of greenhouse gas emissions, air, water and land pollution; and improved health conditions.
Clearly, Republicans won’t stand for any such things. ‘Socialism!,’ they cry. ‘Unfair subsidies!’ ‘It’s the government deficit and huge debt that matters!’ Such hyperbole and rhetoric falls flat on its can when you consider that the same “public” representatives refuse to vote similarly and eliminate subsidies many times the size and scope of the wind and renewable energy PTC.
Adding insult to injury, those longstanding federal subsidies continue to benefit one of the largest, most profitable industries of the industrial, or any other, age—oil and gas. Why such outrageous hypocrisy? Why do voters buy it?
In politics, as in movie-land murder mysteries: Cherchez la money—corporate PAC, now superPAC, and lobbying money in this case, as well as all the other perks enjoyed by our many bought-and-paid-for Congressional representatives—junkets, “business” trips, paid-for conference vacations, discrete, timely deposits to bank accounts in offshore tax havens… Who knows? The sky’s the limit, ya know, in our circus merry-go-round of a political system because big corporate donors are going to get paid back many times over.
A Brief History of the Energy Production Tax Credit
The PTC for wind and renewable energy, or power, production is actually a relatively recent creation. Established by the Energy Policy Act of 1992, it’s intended “to stimulate use of renewable technologies for power production by providing a production-based credit for the first ten years of project operations beginning at 1.5 cents per kilowatt-hour (kWh),” adjusted upwards for inflation in future years, explains Ryan Wiser, Mark Bolinger and Galen Barbose of the Ernest Orlando Lawrence Berkeley National Laboratory in a 2007 paper entitled, “Using the Federal Production Tax Credit to Build a Durable Market for Wind Power in the United States.”
Only wind and “closed-loop” biomass were originally eligible for the PTC. Companies in the emerging solar and geothermal industries were eligible to receive an investment tax credit (ITC).
By 2007, the inflation-adjusted value of the PTC was 2 cents per kWh ($20 per megawatt-hour (MWh)), and it had been expanded to include geothermal. Hydro power, landfill gas, and municipal solid-waste-to-energy systems were made eligible for a PTC at half that rate, while non-renewable energy sources, including refined coal, Indian coal, and nuclear power are also eligible for PTCs. Solar energy was eligible for the PTC briefly, from 2004 through 2005.
The American Wind Energy Association (AWEA) summarizes the two principal federal subsidies supporting the US wind energy industry. “Under present law, the PTC provides an income tax credit of 2.2 cents/kilowatt-hour for the production of electricity from utility-scale wind turbines. The PTC is set to expire on December 31, 2012.
“Additionally, through Section 1603 of the American Recovery and Reinvestment Act of 2009, wind project developers can choose to receive a 30% investment tax credit (ITC) in place of the PTC. For projects placed in service before 2013, at which construction begins before the end of 2011, developers can elect to receive an equivalent cash payment from the Department of Treasury for the value of the 30% ITC.”
The Dramatic Economic Impact of Wind Energy PTC Extensions and Lapses
At the time the Berkeley Lab paper was written, wind power met less than 1% of US electricity needs, but the stimulative effect of the PTC was clear and positive. The effect on other renewable energy industries was not yet substantial for other renewable energy sources, in part because they had been eligible for the PTC for only a short period of time, the authors noted.
As the paper’s authors wrote,”The PTC reduces the price of wind-generated electricity by roughly 2¢/kWh on a 20-year levelized basis, thereby making wind more attractive to electric utilities and other investors. In fact, with the PTC, wind power is now economically attractive in some regions of the country relative to more-conventional electricity sources.”
Creating Boom-Bust Cycles
Even at that time, it was clear that alternating lapses and renewals of the wind energy PTC, typically over 1-2 year periods, has created cycles of boom and bust in the US wind energy industry, however.
According to the authors, “Partly as a result of the PTC, the U.S. has led the world in newly installed wind power capacity for the last two years. Nearly $4 billion was invested in new U.S. wind projects in 2006 alone and, since the PTC began in 1994, U.S. wind plant additions represent an aggregate investment of roughly $13 billion.”
In contrast, there were sharp declines in wind energy investment in 200, 2002 and 2004. “In each of these cases, the PTC lapsed for some period of time before being subsequently extended, substantially dampening development activity. Though some wind development will surely occur even without the federal PTC (e.g., due to state policy efforts and other factors), this historical experience suggests that the PTC, or some alternative policy, may be crucial if significant near-term growth of the wind market is desired,” the authors stated.
Peering out into the future, the DOE’s National Renewable Energy Lab in 2007 used a model specifically designed to forecast wind deployment, the authors noted. The results: Extending the PTC through 2020 “could stimulate enough wind power to serve as much as 17% of the nation’s electricity supply by 2030.”
Ongoing Congressional battles over renewal of the wind energy PTC have continued since 2007, and so have the boom-bust cycles. Here’s a chart from the American Wind Energy Association (AWEA) clearly illustrating the boom-bust cycle in the US wind industry.
Repercussions and Future Course of Action
The instability of the federal wind energy PTC had severe, negative repercussions for the US wind energy market and industry back in 2007, repercussions that hold true today as Congressional Republicans continue to thwart efforts to renew the wind energy PTC. Among them, the Berkeley Lab paper’s authors listed:
- Slowed Wind Development
- Higher Wind Supply Costs
- Greater Reliance on Foreign Manufacturing
- Difficulty in Rationally Planning Transmission Expansion
- Reduced Private R&D Expenditure
The AWEA recently released a Navigant Consulting research report examining the wide-ranging, potential impacts renewing the wind energy PTC or allowing it to expire would have.
According to numerous studies and for energy policy experts, it’s clear that the wind energy PTC has had large and wide-ranging benefits for the US economy. Increased wind energy investment and project development since 2007 has been a sorely needed bright spot for the US in terms of investment, economic growth, and green job creation, while at the same time reducing our dependence on imported petroleum and significantly increasing the amount of clean, renewable energy produced and consumed domestically. It’s also yielded substantial tax revenues to local, state, and the federal government.
Passing a long-term extension of the wind and renewable energy PTC would enable the US to build on that trend. Allowing it to expire threatens all of the above. This begs the question,” Why are Congressional representatives voting against it?”
I've been reporting and writing on a wide range of topics at the nexus of economics, technology, ecology/environment and society for some five years now. Whether in Asia-Pacific, Europe, the Americas, Africa or the Middle East, issues related to these broad topical areas pose tremendous opportunities, as well as challenges, and define the quality of our lives, as well as our relationship to the natural environment.