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Big Wind and Tax Reform

Conservatives make fun of indulgent liberal parents whose offspring remain dependents well into their 20s. But Republicans rewriting the tax code in Washington are coddling a millennial of their own: the wind lobby.

In the 1980s wind power was dubbed an “infant industry” that needed federal help to grow. More than three decades and tens of billions of dollars in subsidies later, the business of making electricity from spinning turbines remains inefficient and heavily dependent on federal aid—i.e., the American taxpayer. Tax reform is a chance to tell the wind racket to get off the dole but it isn’t clear Republicans are up to the task.

Since 1992 the wind industry has lived off a “production tax credit” that begins with construction of a turbine and lasts 10 years. The original value of the credit was 1.5 cents a kilowatt hour but the law included an annual inflation adjustment. As Warren Buffett explained in 2014: We “get a tax credit if we build a lot of wind farms. That’s the only reason to build them. They don’t make sense without the tax credit.” This also explains why producers are known to sell their output below cost merely to cash in on the subsidy.

By 2015 the credit was up to 2.4 cents per kilowatt hour at a cost to the feds of $2.6 billion. That’s when Congress passed legislation to reduce the production tax credit 20% a year, starting in 2017, with a goal of ending the subsidy after 2020—though a turbine that qualifies up to that last year would continue to receive credits for 10 years.

Enter Republicans with their pledge to cut corporate taxes in exchange for closing loopholes. Well, some Republicans and some loopholes. In its draft tax reform the House proposes to cut the value of the wind subsidy to its 1992 level of 1.5 cents per kilowatt hour and to stick with the phase out schedule agreed to in 2015. To stop companies from gaming a system in which the handout shrinks every year, the bill also clarifies the terms for a new turbine to be eligible for a credit.

The wind lobby is crying foul on grounds that it has made commitments to projects that rely on the subsidy but may not qualify as “under construction” in 2017 under the new rules. It ought to be thankful the House is offering to let the scam wind down gradually rather than kill it. Even if the House proposal survives, the subsidy will take billions more out of the pockets of working Americans and transfer the money to rich investors.

It’s common knowledge that current wind-power technology cannot compete in the electricity market and propping it up drains federal coffers. It also removes the incentive to innovate. But wind blows in red states and the subsidy has created an interest group. Iowa’s Chuck Grassley has released a statement rejecting the House proposal, and the Senate’s draft tax bill sticks with the current production credit.

This goes to show that as long as a subsidy has life, it has lobbyists. No one should be surprised if the wind-power production tax credit survives.