Filed under: Capitalism, Economy, Energy, Environment, Politics, Statism, Taxes | Tags: Allow it to Expire, Misguided Subsidy, Production Tax Credit Ends
There’s an idea that has dominated many industries, particularly in technology. The first prototypes will be prohibitively expensive, but once you get into mass production the prices will drop enough to be accessible to all. We have examples galore in the computer industry. But it is not a rule that applies universally.
This was assumed by many to be the role that renewable energy would play. Wind and solar energy have been harnessed for centuries, often usefully. It was thought that with new high-tech turbines sited in the windiest places to be found, that wind energy, which is essentially free, could replace high cost imported oil and gas. Governments offered generous subsidies and governments obligingly slapped on mandates to insure that the energy they were subsidizing got used.
Anything offered by government becomes deeply involved with politics and lobbying, it was not long before it was apparent that the great new wind turbines were also bird cuisinarts. So the wind industry not only gets subsidies and mandates, but it also gets a de facto exemption from prosecution under some of America’s oldest wildlife laws. This is an era when you can be prosecuted for picking up a dislodged feather from your front walk. Really. In the history of American business it would be hard to find an industry that has enjoyed more political favoritism than the wind-energy industry now enjoys.
The Production Tax Credit (PTC) is the subsidy, and it expires this year. If Congress does not renew it, the wind industry will shut down. That simple. Senator Chuck Grassley (R-IO) who supports an extension of the tax credit said: “If we’re going to have a discussion of which industries merit federal support and which don’t, the discussion needs to be intellectually honest.” Good idea, but Sen. Grassley also supports putting a large percentage of our food crops into our gas tanks.
First, you have to keep in mind some simple facts that often get lost. Wind produces only electricity. It does not replace ‘imports of foreign oil.” Wind has been harnessed for centuries, never very profitably. It ground grain, pumped water, and powered sailing ships when they were not becalmed. Wind is intermittent and unreliable. It blows in wafts, puffs, breezes, gales and hurricanes, and more variations in between. It can stop blowing for days on end. That is the nature of wind, and no technology will change that nature.
We have developed very high-tech turbines, huge turbines, but to function efficiently turbines need a steady velocity of wind. That’s what they are talking about when they speak of capacity — the perfect wind at the perfect speed, blowing constantly. Doesn’t happen. That means that there must be a backup of some sort for the moments or hours or days when the wind does not blow. That means you must have a conventional power plant ready to ramp up when the wind dies.
On a raw, per-unit-of energy-produced basis, subsidies to the wind sector are more than 200 times as great as those given to the oil-and-gas sector. The Congressional Budget Office estimates that tax preferences for renewable electricity production in 2011 totaled $1.4 billion. Most of that went to wind-energy which produces 60 times as much electricity as the solar-energy sector.
That $1.4 billion doesn’t include any of the $3.25 billion in tax-free grants given to the wind-energy sector by the Treasury Department by the Stimulus. You have surely heard Democrats complaining about the subsidy that goes to the oil and gas industry.
The preferences for the fossil-fuel sector totaled $2.5 billion in 2011. The wind sector is getting subsidies that are about twelve times as great as the tax preferences provided to the oil and gas sector which has no mandates for consumers to buy gasoline or natural gas. Twenty-nine states have mandates requiring use of renewable energy. Otherwise you wouldn’t pay for it.
Congress has ended the corn ethanol subsidy, but the mandate for its use remains. Try to find an ethanol-free gas tank, and the EPA is striving to increase the amount of corn ethanol in gasoline. (Never mind the damage to your car).
I just detailed the new requirements for the oil and gas industry regarding offshore birds and mammals. A violation of the Migratory Bird Treaty Act and the Eagle Protection Act can result in a fine of $250,000 and/or imprisonment for two years. According the U.S. Fish and Wildlife Service, some 440,000 birds per year are being killed by wind turbines, but the Obama administration has never prosecuted the wind industry for violating the law. Oil and Gas industry people are regularly prosecuted.
The Department of Energy’s Advanced Technology Demonstration project is in addition to the wind production tax credit and means that wind producers can actually sell their energy to the grid for negative prices and still collect a profit from the taxpayers. It’s time to end the subsidy.
The assumption that government stepping in to help politically preferred technology will make that technology low cost and competitive — may not be operative in this sector at all. In every nation, as far as I can tell, when the subsidies end, the sector goes out of business, green jobs and all.
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American Elephants 
Good post. A few comments:
Agriculture. Biofuels. Aviation. And, surprise, surprise, aviation biofuels.
Amen.
Good point. And don’t forget bats. There are wind turbines that are much more bird and bat friendly — generally, vertical access ones — but they are not the ones favored by government policy makers. Also, the inventors are often their own worst enemies. A wrote to the person trying to market this one (which is not a bird cuisinart), to ask him about levelized cost, and he responded as if I was some industrial spy. I wished him good luck, but advised him that interest in his invention would be pretty low until he gives people some indication of its economic viability:
It does on small, remote islands, most of which get their electricity from burning (expensive) oil.
Not entirely true. It kick-started the industrial revolution in the Netherlands, and it was profitable as a source of energy for grinding grain and pumping water. Still is in some places.
Nor does it include various investment and production incentives provided by the States.
I think that’s for O&G, not all fossil fuels. Other estimates, for the fossil-fuel sector as a whole, are about double that. And, as with the subsidies for renewable energy, it doesn’t include subsidies and tax benefits provided by individual states. Nonetheless, per unit of energy, the “subsidies” for fossil fuels (not counting the value of externalized costs) are much lower per unit of energy than for renewable energy.
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Again, that is per unit of energy, not in absolute terms. Important distinction to convey.
Nice, crunchy piece of information, though I imagine that wind-energy proponents would observe that the numbers of birds killed by oil spills is also large.
In places with high wind penetration, like Germany (where it is electricity rate payers, not taxpayers, that subsidize wind-generated electricity prices), this phenomenon of negative prices is causing a lot of problems with the grid.
In every nation, as far as I can tell, when the subsidies end, the sector goes out of business, green jobs and all.
The wind industry is now too big. There will be consolidation, certainly, but I predict that some would remain in business as long as there are renewable-energy mandates somewhere, and especially while small island nations switch to non-petroleum-dominated electricity systems.
Finally, below is a link to an interesting article on a “compromise” being proposed by the wind industry. Don’t you just love it when industries treat these subsidies as entitlements and then portray themselves as magnanimous when they “offer” to do with less?
http://www.greentechmedia.com/articles/read/Wind-Industry-Calls-for-6-Year-Phase-Out-of-PTC-Subsidy/
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Comment by Subsidy Eye December 15, 2012 @ 2:00 amHere’s a statement from Henk Tennekes: One of the articles I linked to points out that the oil and gas industry was fined heavily for the death of a Says phoebe. Robert Bryce goes into the bird and bat slaughter at some length (2nd link). Yes, of course, there are undoubtedly remote islands or places where wind is a possible source of energy and nothing else really is. Something is better than nothing.
The point I keep trying to make is that the right wind speed of wind is not a constant. The really wrong speed happens, and no wind at all can go on for weeks. Offshore wind, which is way more costly than onshore, subject to way more problems of installation and corrosion is the administration’s big new thing. Maine has just signed on to a big new offshore project. Seems a little questionable in the wake of Sandy, but of course most of the damage from that storm came from the storm surge, not the wind. And nobody talks publicly about the downside, which is considerable. There are several lawsuits going on about the noise.
I love the Green Tech Media article. We just need more subsidy as a bridge — it will all work out eventually, we just need more time. Uh huh.
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Comment by The Elephant's Child December 15, 2012 @ 11:32 amIn the above, “In every nation, as far as I can tell, when the subsidies end, the sector goes out of business, green jobs and all.” was supposed to be in blockquotes. Don’t know why it didn’t work.
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Comment by Subsidy Eye December 15, 2012 @ 2:34 am