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Report Shows Federal Wind Production Tax Credit “Inefficient” as Policy Mechanism

The PTC, which was enacted in 1992 to boost the wind industry, provides wind producers with a subsidy of $22 per megawatt hour of electricity generated. The PTC has been extended seven times and is scheduled to expire on December 31, 2012.

In the report, titled “Removing Big Wind's ‘Training Wheels’: The Case for Ending the Federal Production Tax Credit,” Dismukes argues against renewal of the subsidy, citing the following:

  • Contrary to popular rhetoric, the wind industry is not an “infant industry” in need of continued assistance but an established industry with 50,000 megawatts of capacity, representing close to a five-fold increase since 2006.
  • Wind development has been driven more by renewable portfolio standard (or RPS) mandates than by the PTC for the past five to eight years, and RPS mandates have established a substantial guaranteed long-term market for renewables, including wind, that is expected to triple by 2030, even without the PTC. In addition, Standards & Poor’s recently estimated that new renewable energy investment opportunities could amount to $150 billion over the next 10 years, even if the PTC is not renewed. Billions of dollars in federal tax subsidies, along with mandated state renewable subsidies, would allow wind generators to “double dip,” and would result in “a gross waste of limited fiscal resources.”
  • The U.S. Energy Information Administration estimates that renewable generation will rise from 500 billion kilowatt-hours in 2011 to approximately 750 billion kilowatt-hours by 2035 without the PTC or other incentives; therefore, “the federal wind PTC is not needed to ensure an increase in future wind generation.”
  • The congressional Joint Committee on Taxation estimates that a one-year extension of the federal wind PTC will cost taxpayers $12.1 billion. The “one-size-fits-all” approach of the federal wind PTC fails to recognize the industry’s heterogeneity and operational differences. The result is wasteful fiscal spending from over-subsidizing projects.
  • The federal PTC is inequitable. Over 50 percent of wind capacity is located in five states, and over 75 percent is located in 11 states, but the federal PTC shifts wind energy development costs from taxpayers in the RPS states to those with little or no wind development. Taxpayers in states without RPS mandates pay approximately 24 percent of the PTC funding without direct benefit.

For these reasons and others, Dismukes argues that the federal PTC should expire. It has “morphed from an ill-designed temporary subsidy for a purportedly ‘infant industry,’ into an inequitable tax hand-out for what is clearly a well-established industry that distorts markets and allows wind to compete unfairly with both conventional generation resources and even other types of renewables.”

The report was prepared for the American Energy Alliance (or AEA). Founded in May 2008, the AEA is a not-for-profit organization that engages in grassroots public policy advocacy and debate concerning energy and environmental policies.

Click here to download a copy of the report.