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7 Myths About the Wind Production Tax Credit

Cartoon courtesy of NetRightDaily.

By David Kreutzer, Ph.D.

The Heritage Foundation

The wind production tax credit (PTC) has created an industry that produces overpriced, intermittent power, and it will continue to produce overpriced, intermittent power so as long as there is a PTC to pay for it. Here are the top seven myths associated with the PTC:

Myth #1: Wind power is, or will soon be, cheaper than conventional sources.

Fact: If this were true, then there would be no need for subsidies.

First, this is a rerun of an argument that has been made for at least 20 years. Second, if wind were already cheaper, then it could compete right now. If it is on the verge, then wind-power producers could enter into long-term contracts (which they already do) that would allow them to recoup their investments in the near future when wind will supposedly be so cheap. Neither case argues for subsidies.

Myth #2: We need to extend the PTC so that businesses will have certainty.

Fact: The only uncertainty regarding the PTC arises from attempts to extend it.

The legislation in force has been very clear ever since it was written: Wind turbines put in place byDecember 31, 2012, qualify for 10 years of production tax credits. Windmills placed in service this year will continue to receive credits—which are worth 40 percent or more of the wholesale value of electricity—for every kilowatt-hour generated until 2022.

Myth #3: Subsidizing wind stimulates the economy.

Fact: Subsidies do not strengthen the overall economy.

Subsidies may well provide jobs and income for those receiving the subsidies, but, as the Spanish experience illustrates, whatever job-creating mechanism the subsidies put in play is offset by running this same mechanism in reverse elsewhere: Financing the subsidies requires taxing other parts of the economy.

In fact, the positive impact of the subsidies is more than offset, since the value of the resources employed in the subsidized industry exceeds the value of the output produced. (If it didn’t, they wouldn’t need subsidies.)

Myth #4: We need to subsidize wind to stay competitive with those countries that are already doing so.

Fact: Countries that subsidize wind are not to be emulated.

Four years ago, the model for a “green economy” wasSpain, but as its economy crashed, it dumped the subsidies. IfSpaintruly believed subsidizing wind power strengthened its economy, it would have increased the subsidies.

Even Europe’s economic powerhouse, Germany, is backing off of its wind subsidies as the cost becomes prohibitive and the difficulties of integrating the intermittent supply threaten its grid.

So now Chinais the model for our new-energy economy. We should note that Chinahas only the 122nd highest GDP per capita in the world—well behind countries such asBulgaria andBotswana. There are no calls to model our economy after those two, and there shouldn’t be any for apingChina’s economic policies.China gets richer as its economy becomes more like ours—not the other way around.

Myth #5: We need to switch to wind because we are running out of fossil fuels.

Fact: We have centuries of the fossil fuels needed for electric power.

The U.S. Energy Information Administration estimates that we have between 200 and 500 years worth of coal in theU.S. Though production of shale gas has grown so dramatically that projections are difficult, a conservative estimate shows that we have 100 years of natural gas available in theU.S. It’s worth remembering that long-run projections of fossil-fuel availability have frequently underestimated the actual reserves.

Myth #6: Wind power provides energy security and reduces our dependence on foreign oil.

Fact: Wind does not substitute for oil.

TheU.S.generates less than 1 percent of its electricity from oil and has enough domestic coal and gas to provide electric power for centuries. Throw in nuclear, and our ability to provide our own electricity is virtually unlimited. It may be that electrifying our automobile fleet would reduce oil imports, but charging the batteries in electric cars can be done more cheaply with abundant, conventional, domestic fuels than with wind.

Myth #7: Wind power will stop global warming.

Fact: An all-out program to increase wind power would not significantly reduce global temperatures.

The Waxman–Markey cap-and-trade bill, with its 80 percent CO2 reduction target, would have limited CO2 emissions far more than would any wind-power subsidies. However, the Waxman–Markey bill would (at best) moderate world warming by only 0.11 degrees centigrade by the end of this century.

 

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