Michael Giberson
Like the editorial board of the Wall Street Journal, I’d like to see the Production Tax Credit for wind and other renewable energy technologies expire at the end of this year as scheduled. So policy-wise, I’m with them. Still, their editorial against the wind power policy yesterday was awful and it deserves public criticism.
So here are quotes from the WSJ in italics, followed by my comments.
“The renewable energy tax credit—mostly for wind and solar power—started in 1992 as a ‘temporary’ benefit for an infant industry.”
Stick with “mostly for wind.” Other technologies qualify, too, including a variety of hydroelectric technologies and geothermal power, but not currently solar power.
Solar was briefly included in the PTC through the American Jobs Creation Act of 2004, but then was back out at the end of 2005. Solar power benefits from the Investment Tax Credit, and until December 2011 benefited from “Section 1603” cash grants in lieu of the ITC.
If you’re tempted to argue they said “renewable energy tax credits”, not specifically the PTC, note that they clearly say the renewable energy tax credits that began back in 1992 (in that year’s Energy Policy Act) – they’re talking about the PTC and they get the solar reference wrong.
Details on the PTC, via DSIRE.
“The ‘1603 grant program’ pays up to 30% of the construction costs for renewable energy plants …. Wind producers then get the 2.2% tax credit for every kilowatt of electricity generated.”
No. To get the 1603 cash grant a developer has to forgo the Production Tax Credit. One or the other, but not both.
And for crying out loud, it is a 2.2 cents/kwh tax credit, not a “2.2% tax credit.” The Heritage Foundation can get this right, you’d think the WSJ could do as well.
(Or, more precisely, that was last year’s subsidy but the PTC is adjusted annually for the effects of inflation so in 2012 it will be slightly higher.)
… and Senator Jeff Bingaman of New Mexico has introduced a national renewable-energy mandate so consumers will be required to buy wind and solar power no matter how high the cost.
I didn’t notice this problem myself, not having dug through the details of the bill Sen. Bingaman introduced last week, but Richard Caperton and Stephen Lacey at Climate Progress point out that the bill caps the cost increase at 3 cents/kwh.
These sloppy errors don’t mean the WSJ is wrong, only that they’re willing to publish poorly researched opinion pieces.
The Caperton and Lacey post at the Climate Progress blog mentioned the above errors and raised some additional complaints. Most of their additional complaints concern the relative virtues of oil and gas production when compared to wind power, and who gets how much subsidy. On these points I mostly lean toward the WSJ‘s view. Suffice to say that wind power subsidies are orders of magnitude higher per unit of energy provided to consumers.
But this brings us to one key point they raise: “one justification for the tax credit is to makeup for the fact that taxpayers are bearing the harm from fossil fuels.”
There is, embedded in this idea somewhere, the foundation of an analytically sound justification for policy intervention. My problem with the Production Tax Credit for wind power is that it flows to wind investors for every qualifying kwh of power generated irrespective of any such benefit. The wind power investor gets the same subsidy whether the wind power produced displaces coal-fired electric power or efficient natural gas-fired power or hydropower. Wind would still qualify for a PTC even if its output was displacing solar power while wind turbines chopped up migrating birds.
While there may be an intellectually defensible case for a policy supporting renewable energy because it reduces a harm, the Production Tax Credit bears little resemblance to that policy.
So let’s let the Production Tax Credit die, and get on with the business of developing sound public policy on emissions. (And please, WSJ, stop embarrassing yourself with silly mistakes.)
“benefit for an infant industry”
What is infant about Wind Turbines? The day the first Europeans to settle in North America set sail, there wind turbines in Europe doing the same useful work that they had been doing for hundreds of years, such as grinding grain and pumping water.
If this exercise were worthwhile, it would have been done years ago.
Interesting mistake on the “2.2% tax credit.” From a policy perspective, I’ve often wondered if changing the subsidy from a flat $/kWh amount to a percentage of the price would fix negative prices and align incentives. Kind of like using a negative income tax rather than fixed forms of welfare. Wind or other renewable-source producers would have more incentive to seek out ways to operate at productive, i.e., high-price times and would stop over-supplying the system when prices drop to zero (or go negative because of the flat credit).
Have others explored what that kind of policy might look like? You’ve posted on negative prices before but I haven’t seen that policy proposal: http://knowledgeproblem.com/2008/11/20/frequent_negati/
PS – Kudos for going after the WSJ on the details despite being on their side policy-wise in this case.
I’m not too keen on fixing the negative price issue directly. I guess I’d lean toward a carbon tax along with repeal of production and investment subsidies, then let markets pull wind if wind can be competitive. (Also I’d pull the plug on state RPS policies if given the choice, but at least without a PTC the state would be paying more of the cost of state policies. Currently states with RPS have the cost subsidized by federal taxpayers.)
Though not even wind in ideal locations is likely competitive with natural gas under $3 mmBTU.
Mike,
A carbon tax is a “blunt instrument”. It bears no direct relationship to its intended purposes, with the exception of raising new federal tax revenue. If the tax rate is high enough to cause an immediate shift to non-carbon emitting technologies, it would be far too large, should those technologies ever benefit from economies of scale or price reductions resulting from technological advancement. However, once government became addicted to the new revenue, breaking the addiction would be very difficult.
A carbon tax is “justified” (rationalized?) on the basis that carbon is a “pollutant” whose emissions must be reduced to avoid CAGW. However, CAGW is a hypothesis based on the outputs of a variety of climate models which have demonstrated limited “skill” in hindcasting the instrumented past, or forecasting the future which has unfolded since their development. How much should we rely upon models that don’t.?
Carbon dioxide, the “evil” GHG of choice, is a globally well-mixed trace gas. Carbon dioxide emissions in the US are relatively stable. However, those emissions are growing very rapidly in the developing countries, particularly in Asia. Reducing US carbon dioxide emissions has the potential only to render global annual emissions somewhat less than they might otherwise have been, though they would still be greater each year. The atmospheric concentration of carbon dioxide would continue to increase, albeit at a slightly slower pace, ceteris paribus. Of course, if higher energy prices resulting from the carbon tax in the US were to drive additional manufacturing to Asia, all bets are off.
There is no state, regional, national or multi-national “solution” to the “problem” of carbon-driven CAGW. There is a global “solution”, assuming that the “problem” is amenable to a “solution”, or there is no “solution”.
I have commented here previously that the “solution” to CAGW is a “three-legged stool”. Recent events suggest that the stool actually has four legs.
Leg 1 – Zero global annual carbon emissions;
Leg 2 – Global veganism;
Leg 3 – Population control (~1 billion sustainable);
Leg 4 – Wealth redistribution; and,
Seat – Global governance.
I believe that the “stool” of CAGW would be one of the ugliest and most expensive pieces of “furniture” ever designed and constructed. (It would also be a “stool” which could not be picked up by its clean end.)
Like it or not, the WSJ editorial is completely and logically correct, albeit with a couple immaterial misstatements and typos. Yes, to the first point, it should have read ‘mostly for wind and other renewables’ not solar. Nitpicky. The author ALSO could have also accurately stated that the PTC for wind starting in 1992 was 1.5 cents/kwh then and increases as it is indexed to inflation. So no technological progress has been made in over 20 years to ‘wean’ the wind industry off of subsidies. Yet the wind industry claims it has made great technological progress (major contradiction and shooting itself in the foot) as it hasn’t advanced significantly for 5,000 years – at the end of the day it’s still a freakin’ windmill that only works when the wind blows! As to the second point, it’s clearly a typo some typesetter made (using a percent sign instead of a cents sign) if you read beyond and see the context. Even if the author was mistaken, this is really ALL you can find wrong to defend yourself against the valid arguments made against wind subsidies?!! Pathetic. The wind industry and the AWEA spin their false propaganda based on biased studies they pay for – with our tax dollars – while screwing non-participant landowners and sucking at the taxpayer teat. Wind is not a financially OR environmentally viable business model. Take away fossil fuel subsidies, I’m still buyin’ gasoline and electricity made from coal and natural gas and the companies are still makin’ money. Not so for wind, after 20+ years of taking my money.
Nick, I absolutely agree with the position that the WSJ editorial takes. I only complained about it because when they do such a sloppy job, it reflects poorly on a position that I’d like to see advanced.
The little mistakes makes it appear that they only half-know what they’re talking about.
And by the way, one more nit pick. The subsidy isn’t per “kilowatt of electricity generated,” but per “kilowatt-hour of electricity generated.” Doesn’t affect the logic of their position, just makes it appear that they are not expert on what they are writing about.
I also agree with you that the AWEA seems tied up in a contradiction when they claim both that they’ve made major advances in technology AND that they must have the subsidies or the wind business will die. But it is wrong to claim there hasn’t been any technological progress in 20 years. Today’s commercial wind turbines are better than those of 5, 10, or 20 years ago.
But here is a nit pick with your comment, Nick, why do you take me as trying to defend myself “against the valid arguments made against wind subsidies”? After all, if you re-read my post more carefully, you’ll notice that I wrote, “Like the editorial board of the Wall Street Journal, I’d like to see the Production Tax Credit for wind and other renewable energy technologies expire at the end of this year as scheduled.” It is my first sentence, you can hardly miss it. Or maybe you noticed my last paragraph, which began “So let’s let the Production Tax Credit die….” That part was in bold letters.
“one justification for the tax credit is to makeup for the fact that taxpayers are bearing the harm from fossil fuels.”
Say that I pay $108 per metric ton of coal, and also produce $20 of external “harm” from using that coal. That $20 shows up as increased costs on others, or as increased difficulties which others would pay $20 to alleviate.
That would justify a policy of buying 1 “coal ton equivalent” for up to $128 from wind or solar installations, instead of buying coal. This ignores the non-equivalent properties, like the inability to store the energy from wind and solar.
But, no one proposes analytically what the harm is or its cost. We seem to have a policy of green energy at any price.
Even if the harm is global warming (doubtful), it isn’t necessarily best to pay 20% more for energy. It may be much cheaper to move to colder areas, or move cities a few miles further inland from rising seas in 400 years.