The political system is so biased toward taxes that you could be forgiven for thinking that the only expiring measure at the end of the year worth our collective concern is the fight over the Bush tax cuts. That’s not the case, as I’ve shown in discussing the trigger cuts and the payroll tax situation and extended unemployment benefits. But there are also other important measures that expire at the end of 2012 that we should scrutinize. I’ll be getting into some of them over the next couple weeks. But one big one is the wind power production tax credit.
Acciona Windpower’s generator-assembly plant here in the heart of the corn belt is down to its last domestic order as the U.S. wind energy industry faces a sharp slowdown.
Demand for the school bus-size pods it assembles to house the guts of a wind turbine is drying up as a key federal tax credit nears expiration. Acciona is now banking on foreign orders to keep the plant going next year, while hoping the credit will be extended.
The debate over renewing the credit is dividing Republicans, with conservative lawmakers from wind states joining Democrats to push for an extension even as the presumptive GOP presidential nominee, Mitt Romney, has made attacks on government support for clean energy, including wind, a centerpiece of his fight against President Barack Obama.
The tax policy, initiated two decades ago, currently gives operators of wind farms a credit of about two cents per kilowatt-hour of electricity they generate. Without the credits, wind power generally can’t compete on price with electricity produced by coal- or natural gas-fired plants. Analysts predict that if the tax credit expires on Dec. 31, as it is scheduled to, installations of new equipment could fall by as much as 90% next year, after what is expected to be a record increase in capacity in 2012.
To those who say that businesses should rise or fall on their merits and not the tax benefits, I would just note that the wind energy production tax credit is just a leveler. Oil and gas companies get billions of dollars every year in tax subsidies in the US, despite having prominence as a market leader. Wind power is commercially viable without the tax credit, as long as coal and gas aren’t receiving their massive credits, as well as having the government pick up the enormous costs from their externalities, in terms of public health and the environment.
Furthermore, there’s nothing wrong with a government encouraging what they would like to see more of, especially when it correlates with saving the planet from environmental ruin. That doesn’t have to come from the tax code; creating a market for wind power with a renewable energy standard could have sufficed. But Mary Landrieu killed that a few years ago by one vote, and now the tax credit is all that’s left.
Because of where wind power has expanded – in rural, red-state areas – there is a chance to fold this into whatever deal comes at the end of the year. But it’s not a guarantee, especially with Republicans on a kind of crusade against clean energy.
Keep in mind that the short-term nature of the tax credit has already harmed the industry. Concerns that the tax credit will not exist in 2013 has already slashed orders and jobs in the wind power sector. For all the talk of uncertainty, it really stems from long-term projects rather than minor fluctuations in income tax policy. And that’s what we’re seeing with the wind power production tax credit. It’s happened before; the tax credit has expired three times in the past decade before being renewed. Each time, production slumped and then returned. Nice job, Congress.