December 20, 2012
Opinions, U.S.

End corporate cronyism and the wind production tax credit

Dave Banks | The Heartland Institute | December 19, 2012 | heartland.org

Last week, the American Wind Energy Association (AWEA) showed their disregard for America’s fiscal challenges, opting instead to ask for continued taxpayer support of an industry that cannot stand on its own – despite two decades of government support.

The wind lobby is asking for a six-year extension of the wind production tax credit (PTC) that would ramp down from 100 percent of the current 2.2 cents per kilowatt-hour for projects started in 2013 to 60 percent by 2018. Projects placed in service that last year would continue to get about 1.3 cents a kilowatt-hour for the next ten years – or until 2028.

For months, Congressional officials had been pushing AWEA to propose a compromise that addressed the country’s growing fiscal concerns. The tax credit is due to expire at the end of this month if Congress does not act.

AWEA, however, dragged its feet, with some of its members hoping that a favorable election outcome would give the lobby more leverage. After all, in August, the Senate Finance Committee paved the way for Senate approval when it adopted a bi-partisan amendment that would extend the PTC for one year for projects that simply started construction (i.e. a shovel hole dug on December 31, 2013 might suffice).

According to the Senate Joint Committee on Taxation, that proposal would cost the American treasury more than $12 billion, compared to recent estimates that suggest AWEA’s proposal could cost the taxpayer nearly twice as much.

Certainly, Gov. Romney had surprised observers by rejecting the PTC, and President Obama campaigned on the issue, particularly in Iowa and Colorado. The president’s reelection, nonetheless, did not pave the way for greater PTC support.

In fact, the opposite occurred with conservative and libertarian groups steadfastly opposing the extension and framing the issue as a litmus test for fiscal responsibility. Last Thursday, a coalition of roughly one dozen groups rejected AWEA’s proposal at a press conference in the Senate. FreedomWorks, in particular, laid down the gauntlet, warning Congress that the group would “score” any activity that would extend the PTC and would “keep a close eye” on Members. As part of this effort, an on-line petition to block the PTC was launched by the group.

Republicans, many of whom have traditionally supported the measure, have been abandoning the tax credit with new revelations that the PTC deters investment in the country’s energy sector and undermines grid reliability. Sen. Tom Coburn from Oklahoma, for example, announced his opposition to an extension the same day of AWEA’s announcement.

One would hope that all Republicans would see the PTC for what it is – a poster child for corporate cronyism. For instance, NextEra, one of the biggest proponents of extending the PTC, spent almost $3 million in lobbying during the first three quarters of this year – with much of that effort focused on the tax credit. It’s interesting to note that NextEra did not pay any federal taxes during 2008-2010 while the utility received $139 million in tax rebates and made a profit of $6.4 billion.

The wind lobby claims that 37,000 jobs will be lost without an extension of the tax credit. But at a cost of over $12 billion, each job “saved” for one year would cost the American taxpayer $327,000. According to the Bureau of Labor Statistics, the median annual wage of a wind assembly worker was roughly $27,000 in 2009 – a tenth of the average cost of the jobs saved by the extension. That gap undoubtedly raises eyebrows.

Such job creation is phony. Real jobs don’t evaporate by the thousands when government support ends. If Congress handed a $12-billion check to a unicorn farm, we could be certain that more than 37,000 jobs could be created under the “right” management. And at the end of the day, that farm would probably be as productive in creating unicorns as wind is in generating electricity when it’s demanded by the market. About 85% of total wind capacity does not operate during peak hours on the highest demand days of the year – a fact that the wind lobby does not want you to know.

In reality, there are no valid policy reasons for extending the wind production tax credit. The PTC does not create real jobs, generate significant electricity when needed and accordingly reduce emissions, or improve our energy security by displacing foreign oil. The only real goal that the PTC achieves is padding the pockets of executives in investment banks and big business, like GE and NextEra.

Republicans in the House and the Senate also need to understand another incredibly important point that resonates across the country and the political spectrum – they can’t ask Americans to accept entitlement cuts, no matter the shape and form, while funding corporate cronyism.

Such behavior is and always will be a losing political strategy. Plain and simple.