America’s debate on green energy is pathetic. In the past year, the two biggest green-energy issues in Congress have been whether to to strip the Environmental Protection Agency (EPA) of various authorities and whether to renew a crude subsidy for wind power.
Here’s the green-energy objective that Congress should pursue: transitioning the country off carbon emissions without unduly burdening taxpayers, consumers and businesses. The best way to do that is to put a tax on carbon emissions that ramps up over time. Consumer choice, not Congress or the Energy Department, would determine how to wring carbon out of the economy, and businesses would also benefit from more certainty about future market conditions. But, despite speculation that such a policy could figure in budget negotiations, the closest thing to an energy debate that the lame-duck Congress has managed has been a return to the fight over that wind subsidy, which expires at the end of the year.
Some of those who sympathize with the wind subsidy, known as the production tax credit (PTC), say that it represents a second-best approach to supporting green energy. In fact it is not even a third- or fourth-best alternative to a carbon tax. At a cost of $1 billion a year, it offers wind operators a flat tax credit for every kilowatt-hour of electricity they produce. No matter if the grid doesn’t need the electricity at any given moment or if the policy blunts the incentive to reduce costs.
After surviving for two decades, the subsidy is facing more resistance than usual this year. So the wind-power lobby is giving a little, proposing last week to allow the tax credit to slowly phase out by 2019. That would make the policy a little better – but still far from attractive.
If direct subsidies are the only sort of anti-carbon policy that lawmakers can contemplate supporting at this time, they should improve the subsidies. There are many worthwhile ideas and more federal supports than just the wind PTC to think about. The availability of green-energy subsidies could, for example, depend on how well generators meet actual electricity demand. Or the government could set subsidy levels in an auction or have them reflect the cheapest players in the market.
The Climate Policy Initiative, meanwhile, reckons that the government could slash costs – saving 40 percent of its money in the case of wind – simply by financing subsidies differently, converting tax credits into taxable cash payments.
It seems unlikely that Congress will see to the production tax credit before it officially expires, instead setting up a debate in the new year. That should give lawmakers plenty of time to consider better approaches.
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