Loris stumbles on subsidies

Nicolas Loris has a post at the Heritage Foundation blog criticizing wind power's federal tax incentive, the Production Tax Credit (PTC). His article is a fitting work product for a blog called The Foundry, inasmuch as the truth has been beaten, battered and twisted into the desired shape. Why is the Heritage Foundation advocating what is in essence a targeted, job-killing tax increase on an industry that has been growing and creating new American manufacturing jobs?  Good question.  Here are some of the facts that got tossed into the scrap heap along the way to a bright, shiny bundle of misinformation.

7 + 1.5 + 1.5 + 2, etc., etc., does not equal 20. It's true, the PTC was enacted in 1992 and next year, will have been in existence for most of 20 years. I say “most of” because it's been allowed to expire, on multiple occasions, and that marks a crucial distinction. Throughout its lifetime, it's rarely been extended for more than 1.5 to two years at a time. As a result, it's been much less effective than it might have been–wind turbine and component manufacturers have rarely been able to make business and investment plans based upon the certainty of stable tax policy.  Loris, engaging in some wishful thinking for a writer of a fossil-fuel-funded group, talks about the incentive being “Gone with the Wind” next year when it is scheduled yet again to expire, but the more accurate simile would be the “Perils of Pauline.” 

When the incentive has been extended in advance, the wind power industry has expanded, creating new American manufacturing jobs. During the past five years, the PTC has seen a period of relative stability. The result has been uniformly positive: American manufacturing jobs are coming back, with tens of thousands of new jobs from wind power. Since 2005, the percentage of domestic content in wind turbines installed here has risen from 25 percent to 60 percent, and the wind manufacturing industry now numbers more than 400 facilities in 43 states. But these jobs could vanish if Congress allows the credit to expire, in effect enacting a targeted tax increase, crippling an American manufacturing success story and sending our jobs to foreign countries. With a job-killing tax increase on the horizon and the PTC's future uncertain, businesses are hesitant to plan future US wind projects, American manufacturers have seen a drop in orders, and layoffs have already started.  For the purposes of the American wind industry manufacturing sector, which needs lead time to make its products, the PTC effectively expires at the end of this year.  To preserve tens of thousands of good-paying manufacturing jobs, the wind energy industry urgently needs Congress to take action to extend the PTC before the end of this calendar year.

The purpose of the incentive is being fulfilled.  The tax credit's purpose is to help the wind industry attract investment and grow, and in the process attract more competition and reduce the cost of electricity from wind power so that the industry can stand on its own in the marketplace. That's been happening over the past few years.  The cost of wind power has dropped by more than 90 percent since the early wind farms of the 1980s, and a recent report from the Lawrence Berkeley National Laboratory (LBNL) found that trend is continuing. LBNL said wind turbine prices have dropped sharply in recent years, due largely to the scaling up of turbine size to reduce cost of energy (COE) and the growth of a domestic supply chain as the U.S. dollar has declined against other major currencies.

While a lot of progress has been made, the industry's not out of the woods yet.  A recent quote from Matt Kaplan, an industry analyst at IHS Emerging Energy Research, explains why the PTC extension is needed: “The industry is at a very interesting inflection point where technology and innovation are really helping to drive down the cost of wind substantially, But the problem is that the industry still needs the PTC to sustain a sizable level of build each year. Wind would have a very challenging time competing without the PTC, that much is clear.”

Certainty is the key issue. The companies that install and operate wind farms need a stable tax policy environment in order to make business plans, determine how much to invest, order turbines, arrange for construction, etc., and as the credit's expiration draws near, that period of stability is growing short. There is no lack of opportunity–one company spokesman notes, “We have massive amounts of land still that can be developed for power production and really good wind resource”–but without knowing what the financial playing field will be, companies will be forced to move to the sidelines.

The bottom line: At this critical economic juncture, the federal government should not increase taxes on an emerging energy industry that is showing very strong potential for growth and employment. Having accounted for 35 per cent of all of the new electric generating capacity installed in the past four years, wind is a proven commercial energy source, and the existing tax credit has been extremely successful in leveraging private funds to help it grow.

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