Pompeo-Flake Urge End to Wind Subsidies

Over the course of the 112th Congress, Heritage Action has been at the forefront of an ongoing effort to end the market-distorting subsidies in the energy markets. Whether it is loan guarantees, various forms of tax credits, or mandate structures that skew the economic landscape, we believe that the ball game of picking winners and losers is a losing one and there are plenty of examples of its failures.

In the last two years, we have watched as lawmakers’ efforts to pick preferred energy and technology fields result in failure, as those “investments” do not become market competitive or fail completely (see Solyndra).

Representatives Mike Pompeo (R-KS) and Jeff Flake (R-AZ) have been two warriors in calling for an end to these subsidies.  Recently, they began pushing an important letter on the expiration of the wind Production Tax Credit (PTC).

Their position is that should the House consider any package of tax extenders, it should not include any kind of extension of the wind PTC. Heritage Action strongly supports this letter and encourages members to sign.

Although wind energy has received various subsidies over the course of the last 20 years, it isn’t economically viable in many markets and relies on the continuance of subsidies and mandates to prop up their business model. Wind energy producers continue to claim that the time to end the PTC isn’t now. Others have called for a “phase down” approach that will wean it in to market euphoria.

The Heritage Foundation’s David Kreutzer debunks this “phase down” myth.

“Though the eligibility date has a sharp cutoff, the financial flows themselves do follow a phase-out pattern. Wind generation that is put in place by December 31 will receive the tax credit for next 10 years.

For instance, in January 2013, all wind turbines placed in service after January 2003 will receive the PTC. Then, in February 2013, the 10-year eligibility for turbines placed in service in February 2003 will expire. Each subsequent month, another group of wind turbines comes to the end of its 10-year-eligibility period and the program winds down until January 2023, at which point no turbines will be eligible for the PTC.

This is the way the current legislation is written. There is a certain, clear cut-off date for eligibility, and the payments phase out in a perfectly predictable pattern over a 10-year period. Certainty? Check. Phase-out? Check.”

As Kreutzer goes on to note, the PTC has been providing a subsidy of 2.2 cents per kW-h to producers of wind energy and this in turn equals a 50% to 70% of the wholesale price of electricity. He concludes that economically the law is costly and inefficient and a 10-year horizon “phase-out” is plenty of time to live with this bad policy moving forward.

The simple fact of the matter is that without the PTC, some wind energy production will remain competitive and others will not. At the same time, the market will push to make potential wind energy production technology more efficient and cost-competitive going forward.  That is better for the industry in the long-run and the consumer, though you wouldn’t know that by the amount of special-interest lobbyists storming the Hill to keep the gravy train running.

Stopping the wind subsidy boondoggle is a good first step, but there are many more energy tax incentives riddling the tax code.  Responsible lawmakers should create an even-handed energy market through measures such as Rep. Pompeo’s Energy Freedom & Economic Prosperity Act (HR 3308), which would end all industry specific energy tax credits swiftly while reducing the corporate tax burden by an equal amount of any additional revenues to the Treasury (thus avoiding a tax increase).

It is time for lawmakers to put their money where their mouth is and stop hurting American taxpayers and energy consumers.

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