The Wind Production Tax Credit: Past Its Prime and a Complete Waste

There is no economic or energy justification for reviving the renewable-energy production tax credit. Doing so would be a case of legal larceny whereby the government authorizes stealing from the many for the benefit of the few.

The renewable energy production tax credit is a classic case of crony capitalism. The beneficiaries of the credit will primarily be the manufacturers of solar panels and wind turbines as well as those who find ways to make money through financing schemes. Advocates can run ads and engage in other form of advocacy to promote how they are contributing to a greener America by reducing our carbon footprint, all the while pushing technologies that are not commercially viable.

The argument used to justify these credits is that “infant industries” need a helping hand to get started. If this ever had a justification it has long since passed and instead of a hand up, it is now simply a hand out. Since the credits’ origin dates back to the 1980s, it is hard to still claim that wind, solar, and biofuels are infant industries.

In 2012, a Clemson University professor and graduate student conducted a study for the George C. Marshall Institute—The Infant Industry Argument and Renewable Energy Production—which carefully examined the case for government support and identified stringent conditions justifying government intervention. Those conditions are: production costs should go down as a result of economies of scale, future savings should outweigh the costs to make a new technology competitive, some form of market failure must exist, and government assistance should be temporary.

The authors concluded that the empirical evidence does not make a case for government intervention in the market place to stimulate the production of renewable energy. They could not find evidence of market failure or any other evidence that would justify continued government subsidies, and certainly not for decades.

Over a decade ago, an article in the November 2002 issue of Science concluded, “All renewables suffer from low areal power densities…renewables are intermittent dispersed sources unsuited to baseload without transmission, storage, and power conditioning.” That conclusion has been validated time and again, and yet special interests continue to persuade the Congress and the Obama Administration to keep doling out taxpayer dollars so that they enrich themselves by promoting the false hope that commercial viability is just over the horizon. But, like the horizon, it keeps receding as you approach it.

The experience that EU nations like Germany should have had a sobering effect on members of Congress. They have saddled citizens and industries with some of highest electric power costs in the industrialized world and as a result provoked deindustrialization. Our low energy costs are encouraging a flight of capital to the US and a renewed growth in manufacturing.

Subsidies are to special interests what heroin is to drug addicts. They just stay hooked as long as the addicted drug is available.

Instead of continuing down the industrial policy road, Congress should focus on energy abundance and a tax code that encourages investment and which is internationally competitive. The sooner that elected representatives stop chasing the climate change hobgoblin, the sooner they might start addressing the real problems that hinder robust economic growth and portend a future not as good as the past.

 

This article appeared on the National Journal’s Energy Insiders weblog at http://disqus.com/wokeefe/

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