Blown away by the attacks on wind-power subsidy
To hear business leaders and political candidates talk, proper industrial policy comprises only three elements: a fair tax system, a level playing field and “certainty.”
So why is it that all three are about to be thrown out the window as a sop to oil, gas and nuclear interests determined to fillet the wind-power industry?
The maneuvering in Washington is over a federal subsidy known as the production tax credit, which is worth 2.2 cents per kilowatt-hour to wind-energy producers. That’s about a third of the cost of wind generation on average; under current law it can be converted into a 30% investment tax credit or, for projects that were under construction by the end of last year, into a 30% cash grant. Any way you slice it, the credit is an essential subsidy for getting the wind industry, shall we say, aloft.
But the mandate is hanging by a thread. After two decades of bipartisan support, suddenly it’s a political football. Industry sources say that right up until midsummer its renewal again looked to be a slam dunk. Then it slammed into the wall.
What happened? For one thing, Mitt Romney lumped in the credit with other “stimulus boondoggles” despite its lengthy pedigree and advocated letting it expire. During his first debate with President Obama, he reinforced his hostility to the measure by attacking it as part of the "$90 billion in breaks” Obama has granted solar and wind technologies.
What Romney conveniently ignores is that fossil fuel and nuclear subsidies dwarf anything provided for renewable energy. But you don’t hear him and the powerful old-energy interests talking about ending most of those handouts.
“All sources are subsidized one way or another,” says Ryan Wiser, a staff scientist at Lawrence Berkeley National Laboratory and coauthor of an annual survey of the wind-energy market.
In other words, eliminating the wind-production credit unfairly tilts the tax system away from renewables and in favor of fossil fuels and nuclear energy, which have been enjoying subsidies for decades.
Romney’s not the only assailant. The Super PAC Americans for Prosperity has sent letters to lawmakers from all over the country, calling for “an energy policy that is based on market principles, not one that is based on extending handouts to politically connected industries, such as the wind” credit. Americans for Prosperity is funded by the conservative brothers Charles and David Koch, whose family fortune comes from oil refining.
Also on the attack is the nuclear industry in the guise of Exelon Corp., an energy company whose portfolio is 92% nuclear. Exelon, which has been campaigning against the credit for more than a year, published a consultant’s report last month suggesting that the credit provides a profit for wind producers even if they sell their energy at a loss. The industry disputes that.
It’s hard to overstate the importance of wind energy to California, or the state’s role in the industry’s growth. California’s mandate that utilities and other providers get 33% of their energy from renewable resources by 2020 is the nation’s most aggressive goal, and wind is essential to meeting it. The mandate helped the state rank first in the nation in new installed wind capacity in 2011, knocking Texas off its perch for the first time in six years.
California is likely to rank first again this year, but it still lags behind in total capacity with 3,917 megawatts of wind production as of the end of 2011, ranking third behind Texas (10,394) and Iowa (4,322).
There’s no question that the production tax credit has been effective. Since its enactment in 1992, wind generation in the United States has grown from almost zero to about 47,000 megawatts, according to a study done by Lawrence Berkeley National Laboratory for the Energy Department. That has made the U.S. the second-biggest generator of wind energy in the world, behind China. But in terms of the national energy portfolio there’s still a long way to go: Wind generation in the U.S. is equal to only 3.3% of our electricity consumption, well behind Denmark (29%), Portugal (19%) and Germany (11%).
“Wind has accounted for more than 30% of new electricity generation in this country over last five years,” says Gregory Wetstone, government affairs director for Terra-Gen Power, owner of the 1,020-megawatt Alta Wind Energy Center near Tehachapi, the nation’s largest wind farm. “Without a production tax credit … we’d be suddenly saying we don’t want wind anymore.”
If the renewal goes through, he says, Terra-Gen would move ahead with plans to expand its Kern County wind farm by 300 to 400 megawatts. If not, the expansion probably won’t happen.
It wouldn’t be the first time that the industry ground to a halt without the credit. New wind development virtually stopped dead in 2000, 2002 and 2004 after congressional dithering led to short-term suspensions of the measure. And those were times when renewal wasn’t really in doubt. Even if the credit is renewed before the end of this year, Wetstone and other industry figures say it’s already too late to keep 2013 from being a dead year for new wind installations.
The theme of the anti-wind lobbying by fossil-fuel organizations such as the American Energy Alliance is that if wind generation is truly viable, it should be able to stand on its two feet without a tax break. They accuse wind producers of relying, after decades of help, on government-funded “training wheels.”
It’s hard to know what to say about this argument, other than that it should be in the dictionary as an illustration for “cynical.” No industry has benefited more than oil and gas from continuing government subsidies. The wind tax credit costs about $1 billion a year.
How do coal, oil, gas and nuclear do? Very handsomely, thank you.
Fossil-fuel producers reap tax accounting breaks such as the depletion allowance, which is worth an estimated $1 billion a year, according to the Environmental and Energy Study Institute, a Washington think tank created to advise Congress on energy policy. Tax-expensing options for drillers bring them $1.9 billion a year. Relief on royalty payments due to drillers on government property: $53 billion over the lifetime of the leases. Partially as a result, the U.S. government’s take from its oil and gas leases is among the lowest in the world, the Government Accountability Office found in 2007.
Then there’s coal, the owners of which get to classify royalty income as capital gains, therefore paying a preferential tax rate. This break was enacted in 1951 as relief from the high taxes levied to pay for the Korean War (paying for wars from tax revenue, not by borrowing, was a quaint practice of that era). Bizarrely, it never went away and today is worth as much as $170 million a year to the coal industry.
Finally, there’s nuclear, which over its fledging years received subsidies that dwarf all others, while producing a small fraction of the energy per subsidy dollar of any other fuel source. To this day, according to a study by the Union of Concerned Scientists, the nuclear power industry receives subsidies worth as much as 11.4 cents per generated kilowatt, or five times as much as the 2.2-cent wind tax credit. (The figure includes such breaks as the federal cap on the industry’s liability for nuclear accidents and the government’s shouldering of waste management costs.)
What gives away the game on the real goals of the lobbying against the wind credit is that for all their talk about letting “the market” dictate energy policy, Romney and the Koch types never seriously advocate ending the existing subsidies for oil, gas or nuclear. Those politically connected industries are the antithesis of market operators, and their real goal is to tilt the playing field back toward the past, not the future.
Michael Hiltzik’s column appears Sundays and Wednesdays. Reach him at firstname.lastname@example.org, read past columns at latimes.com/hiltzik, check out facebook.com/hiltzik and follow @latimeshiltzik on Twitter.
Your guide to our new economic reality.
Get our free business newsletter for insights and tips for getting by.
You may occasionally receive promotional content from the Los Angeles Times.