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Eliminate the Wind Production Tax Credit

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Eliminate the Wind Production Tax Credit

December 10, 2017

The House and Senate are trying to reconcile their versions of the tax bill and send it to President Trump for his signature. Hanging precariously in the balance is a House proposal to pare back a lavish corporate welfare scheme for the wind industry in an effort to provide greater scope for tax cuts.

The House bill seeks to reduce the wind element of the Renewable Electricity Production Tax Credit (PTC), a tax credit that Treasury estimates is on track to deliver companies in the renewable sector in excess of $40 billion over the ten years to 2027. The Joint Committee on Taxation projected the proposal would recoup $12.3 billion for taxpayers over this period.

The PTC provides a tax credit for expensive energy produced from renewable sources that is sold to end-users. Wind generation currently receives the PTC at a rate of 2.4 cents per kilowatt hour for 10 years after commencing operation. It is supposed to be phased out by 2020—unless it is renewed again, as has happened in the past. The House bill reduces the generosity of the tax credit to 1.5 cents per kilowatt hour for wind facilities that are commenced after the legislation is passed.

The wind tax credit provides financial support for wind generation and is the major federal-level policy artificially sustaining the industry. There is no convincing case for encouraging the production of costly and unreliable wind generation by giving it a tax credit. The cost of abating carbon using wind energy is high relative to alternatives and distorting investment in generation capacity erodes productivity as well as slowing job creation and growth.

The myth of generous subsidies for fossil fuels is used by the industry as a foil to shift attention from the scale of the tax credit. The Energy Information Administration’s most recent examination of direct federal support to the energy sector found that renewable generation received fully $15 billion out of over $29 billion in total taxpayer largesse in 2013, the bulk of which flowed to wind, solar and biofuels. Financial support for coal, by comparison, was just over $1 billion, even though coal contributes twice as much generation capacity.

The EIA’s report excludes the myriad state-level schemes that support renewable generation, including the hidden subsidies embedded in the renewable portfolio standard (RPS) mandates that exist across 29 states and in the District of Columbia. The RPS programs dictate that energy retailers must arbitrarily source selected percentages of their electricity from renewable generation by specific dates. Their effect is to force high-cost renewable energy into the grid and raise electricity prices. Entirely retrograde for the purpose of accountability, payments to renewable generators under the RPS schemes are given the seemingly benign nomenclature, “certificates,” to hide both the corporate welfare they deliver to renewable energy manufacturers and the higher electricity prices paid by consumers.

Examining the profile of the PTC’s cost to taxpayers, it is easy to see why lawmakers stepped in to give the program a haircut. The tax credit is expected to cost $1.6 billion in 2017, with the expense ramping up sharply to $4.9 billion by 2025. Because the credit is open-ended, costs could be higher than projected, and remedial action by Congress is prudent.

Lobbyists for the wind industry were busy on the Hill prior to Thanksgiving, working frenetically with their allies in the Senate to protect the scheme. The extent to which the wind industry relies upon its patrons in the Senate is evident in the public lobbying now the tax reform package is headed to conference. The American Wind Industry Association is running attack ads on the House bill that openly laud the actions of their champions in Congress.

With the slim Senate GOP majority, it is likely that the final bill will keep the tax credit. The political economy dynamics are such that it is unlikely that the wind tax credit will be rationalized as promised in the House bill. No well-organized constituency is fighting for the interests of consumers and taxpayers, despite a sound policy case to reduce or abolish the credit ahead of schedule.

Some hope can be taken from the current political mood to push back on lobbying by special interests. Reducing the size of the wind tax credit aligns well with the Trump administration’s commitment to energy dominance with its emphasis on ensuring a secure, affordable and reliable national electricity supply. Taking the burden of overly generous corporate welfare programs off the back of taxpayers will strengthen the economy and benefit all Americans.

Burchell Wilson is a contributor to E21.

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