At the end of the year, the wind production tax credit (PTC) expires. To continue this lavish handout to wind developers, wind supporters such as U.S. Senator Chuck Grassley have resorted to ever-more specious arguments to support yet another extension, or an uncreative “phase out” for a tax credit that has been on the books for two decades now. In a reaching Nov. 29 Roll Call piece, Sen. Grassley wrote that the Wind PTC is “is no different than tax incentives or favorable policies for other energy sources,” and argued that it is a key component to reducing our dependence on the Middle East. These arguments are completely wrong and are merely excuses for continuing taxpayer handouts to an industry that doesn’t need them.
Although Sen. Grassley argues that the Wind PTC provides a subsidy only for power produced, which somehow makes it “better” than other subsidies, the Wind PTC is an exceptionally inequitable, inefficient mechanism for subsidizing energy. Indeed, the PTC does directly subsidize wind power production, but because not all states are home to major wind installations, many states unfairly shoulder the burden of the PTC. To this point, a recent study estimated that 24 percent of federal taxpayers fund the PTC, without receiving any direct “benefit” from it in the form of artificially cheap wind power. Having a one-size-fits-all federal policy that only benefits the states that have wind power—much of which is concentrated in Texas, California, and Iowa—is unfair and illustrates the flaws of subsidizing power production at the federal level.
Secondly, contrary to what Sen. Grassley alleges in his article, the PTC isn’t your garden-variety subsidy. Rather, the $22 per megawatt-hour subsidy provided by the PTC is equivalent to half or more of the entire wholesale price of electricity in many parts of the country. Worse, the Wind PTC is so lucrative that wind producers can afford to pay electrical grids to take their power even when it isn’t needed, just to collect the subsidy. Sen. Grassley wants people to think that the PTC is no different than other incentives, but has an oil company ever paid you to take their product? If incentives for oil production were like the PTC, a few times a month your gas station would pay you to take their gasoline.
Furthermore, when wind operators pay the electrical grid to take their electricity, this harms the reliable nuclear and coal power plants. Nuclear and coal plants are made to run efficiently by producing nearly constant amount of low-cost power. But the PTC makes wind producers dump their highly subsidized electricity on the grid, forcing nuclear and coal producers to reduce generation and reduce their energy efficiency.
Conversely, by nature of its variability, wind is not reliable. It only produces power when the wind blows—usually at nighttime when demand is low—and after decades of subsidies, it still only provides 2.9 percent of our electricity today. Plus, many of the best areas for wind are already being used, and continuing to pump money into an already established industry won’t get the results Sen. Grassley is promising with an extension. Instead, extending the PTC means supporting a subsidy that threatens the reliability of the electricity we use to power our homes and businesses.
Lastly, Sen. Grassley contends that turmoil in the Middle East means that we need to develop more wind power, but he fundamentally misunderstands how electricity is generated in the United States. Wind is used for electricity, while oil is used as a transportation fuel. Only 0.7 percent of electricity is generated by oil, meaning the two are not competitors as Sen. Grassley implies. Nearly 100 percent of U.S. electricity generation comes from domestic sources because we have vast coal, natural gas, nuclear, and hydro power resources.
Rather than less dependence on Middle Eastern oil, here’s what Americans can expect under the current plan to extend the PTC for one year: the U.S. Treasury will have $12 billion less to put towards deficit reduction, and if you take the 37,000 jobs the wind industry optimistically estimates will be created under an extension, each job will come at a price tag of about $327,000. If that’s what Sen. Grassley calls “tax relief that rewards results,” we should be sincerely worried about Washington’s priorities.
Americans want fiscal reform now, not next year or in five years. Instead of continuing to kick the can down the road, Congress can demonstrate its commitment to reining in wasteful spending today by allowing the ineffective Wind PTC to expire. Call it a Fiscal Cliff “Litmus Test.”