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A Mighty Expensive Wind Subsidy

David Williams on 2012-08-12 19:13:42

Like the child who just isn’t quite ready to move out of his parents’ house so too does the wind industry plead with Congress to let its lucrative subsidy stay just a little bit longer.  The weak argument that the child and the industry use is nearly identical.  Something to the effect of: Because this time things will work out, with just a little more money this time will be different, this time is the time they’ll make it on their own.  Taxpayers shouldn’t believe it whether it is a relative at the door or Congress extending production tax credits to the wind industry. 

The argument the wind industry makes is that it is a sector of the economy with tremendous potential and is so close to being commercially viable.  In order to make that a reality it needs just this teeny handout to help it stand on its own two feet.  The additional funding which will provide the push it needs to make it competitive in the market. The promise is that a subsidy, such as the wind production tax credit, will be just the ticket that’s needed to take the industry over the valley of death to an economically viable company that produces a competitive and clean source of energy.

The argument the wind lobbyists make today is nearly verbatim to what they said back in 1992.  Just take a look at this 1992 New York Times article, “A New Era for Windmill Power.”  The piece explains that “striking improvements in technology, the commercial use of these windmills, or wind turbines as the builders call them, has shown that in addition to being pollution free, they can now compete with fossil fuels in the cost of producing electricity.”  The obvious question then is if that was true in 1992, then why did wind ever need a tax credit?  A full 20 years have gone by and only 2 percent of our nation’s energy comes from wind. 

Fortunately for the wind industry (and unfortunately for taxpayers) Senate Majority Leader Harry Reid (D-Nev.) still believes that extending the credit is good policy.  After all, wind only needs its tax credit extended to allow it to compete with fossil fuels, right?  Sen. Reid went so far as promising a vote “to extend a $12 billion federal tax credit for utility-scale wind energy projects” earlier this month. According to a Bloomberg article, “The American Wind EnergyAssociation, the trade group advocating the credit’s extension, has said it’s willing to work with lawmakers on the future of the credit and has said it doesn’t need to exist forever...”  However the industry group hesitates and avoids providing a definitive date when they will no longer need the handouts.  It’s been 20 years since wind got its first production tax credit, Congress shouldn’t make us wait another 20 years until it goes away. 

The issue is that the wind industry’s statement above isn’t consistent with the other statements we hear from the industry and companies within it.  For example, a Reuterspiece reported that “The head of the world's biggest wind turbine maker, Denmark's Vestas Wind Systems, has said that the U.S. wind turbine market would likely fall by 80 percent next year if the credit expired.”  This admission perfectly makes the point for why subsidies benefit neither the market nor industry.  Wind companies openly admit that they will face major cuts and may go out of business if Congress does not extend this tax credit.

Subsidies create a false sense of security for companies to the point that the company’s very existence hinges on whether they continue to receive the subsidy.  If the industry will collapse without a subsidy then that tells us that it’s government money that artificially creates demand for the product.  So if the industry ends up disappearing when the tax credit disappears, then that’s because not enough consumers want its product.   And remember that regardless of whether the production tax credit is extended, the wind industry will still be able to enjoy a guaranteed share of the market because 29 states have adopted renewable energy portfolios that demand a certain percentage of the state’s energy consumption come from wind. 

The single action that will be most effective to get the wind industry to stand on its own is just that – making it stand on its own two feet, absent a government crutch.  This will allow wind companies to succeed or fail on their own merits.  Sometimes all it takes is a little tough love. After 20 years, the time for tough love is here.

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