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Subsidies and Tax Credits Are Not The Same Thing

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Subsidies and tax credits are not the same thing. Subsidies are direct payments to a company, such as Spanish-based Gamesa (that laid-off 165 people in August), that received $10 million of the total $20 billion subsidy the wind energy industry received during the past 20 years. The wind industry is an artificial market that would not exist without government subsidies. The Production Tax Credit (PTC, a subsidy despite its name), the one the American Wind Energy Association (AWEA) says the industry cannot live without, is set to expire at the end of 2012.

But hope springs eternal, especially when taxpayer money is involved. The AWEA, in 1986, said that wind electrical generation would be cost-competitive with other forms of electricity generation if only it received the taxpayer’s help for a few more years. Let’s see. The industry has had more than 25 years to become competitive, yet has failed to do so. Just how long is “a few more years?”

Democrats/liberals/progressives (DLP) will maintain that subsidies and tax credits are the same thing. That argument rests upon the premise that all oil and gas industry revenues belong to the public (as in socialism), and that there is a direct cost to the public when the oil and gas industry avails itself of tax credits that are available to all industries.

But let’s pretend, for a moment, that subsidies and tax credits are the same thing.

In a BTU-to-BTU (British Thermal Unit) comparison, wind-generated electricity doesn’t do well compared to fossil fuel generated electricity. The Energy Information Administration, in 2007, estimated the per-BTU cost of electricity generated by fossil fuel (Natural Gas and Petroleum Liquids) to be $0.25, while the cost per-BTU of electricity generated by wind to be $23.37. (see table ES5, page 6) So, wind’s subsidy is over 93 times what fossil fuels received. Just so you know, nuclear power generated electricity received $1.59 per-BTU, so wind received over 14 times the support that nuclear did.

According to the Congressional Budget Office (CBO), in 2011, the US averaged renewable energy production of 909,000 barrels of oil equivalent per day, and received $1.4 billion, with a majority of that money going to the wind energy industry. None of that money includes the $3.25 billion in tax-free subsidies (direct payments of tax dollars) awarded under section 1603 of the American Recovery and Reinvestment Act to the wind energy industry by the Treasury Department. According to Robert Bryce:

“On a per-unit-of-energy produced basis, the PTC provides a subsidy to the wind industry that is at least 12 times as great as that provided to the oil and gas sector and 6.5 times as great as that provided to the nuclear industry.”

Further, Bryce says that wind energy industry is getting a $1540 per barrel equivalent subsidy, over 12 times the amount of tax credit provided to the oil and gas industry of $127 per barrel equivalent.

Whether or not green energy (in this case, in the form of wind energy) is preferable is not the topic of discussion here. What is being discussed is how, if we pretend that subsidies and tax credits are the same thing, the wind energy industry still makes out like a bandit.

DLPs will argue that China is heavily subsidizing the wind energy industry, so we should also. Well, if y’all want to (continue to) subsidize the wind energy industry, feel free to do so by buying wind energy industry stocks. There are some bargains (look at the 3-year chart) to be had. Just use your own money, not forced subsidization through tax dollars, to do so. I promise not to gloat too much when y’all go broke.

And this discussion omits how the wind energy industry is given a pass on its killing of birds protected by federal law under the Migratory Bird Treaty Act and the Eagle Protection Act. But that’s the subject of a future article.

But that’s just my opinion.

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  • You are right, but….

    Please, put all fossil & nuclear plants around your house and keep around us only green energies. Finally, we will support turbines and you will have enough money to support your family healthty. Fukushima investors thought almost the same until last year…. They not gloat

  • Dr Dreadful

    The Production Tax Credit (PTC, a subsidy despite its name)

    So let’s get this straight. Subsidies and tax credits aren’t the same thing – except when it suits your argument that they are?

  • The PTC is tax relief that only rewards results and doesn’t cost taxpayers a dime. It pays for itself, through federal, state and local taxes paid by the expanded industry, including wind farm operators and their employees.

    As Republican strategist Karl Rove said recently, “It is a market mechanism, you don’t get paid unless you produce the power, and we’re not picking winners and losers, we’re simply saying for some period of time we will provide this incentive as we scale up and get improvements in technology.”

    The PTC has always been a short-term policy mechanism, extended in one- to three-year increments, even having been allowed to expire several times before being renewed.
    As result of the PTC being up for renewal again, the wind industry is facing the recurrence of the boom-bust cycle it has seen in previous years when the PTC was allowed to expire. In the years following expiration, installations dropped between 73 and 93%, with corresponding job losses.

    According to Navigant Consulting, 37,000 Americans stand to lose their jobs by the end of the first quarter of 2013 if Congress does not extend the PTC.

    Wind energy creates thousands of jobs in the United States and economic boom times for rural communities all around the country. The wind industry currently attracts up to $20 billion annually, all driven by a simple tax relief program that more than pays for itself in taxes and other economic benefits from wind farms.

    Further, traditional power plants need “backup” more than wind does. The critical difference between the variability of wind plants and that of conventional power plants is that the output of a wind farm changes slowly and predictably, while failures at conventional power plants occur instantaneously and without warning. When wind turbines are spread over large areas, their output becomes far more constant and even easier for the grid to accommodate.

    Just ask the utility system operator for Texas, where wind power helped keep the lights on twice last year when many fossil-fired power plants failed. Or ask Colorado consumers, where wind recently provided 57% of Colorado’s total electricity use with no reliability problems—a very impressive figure for a new energy source.

    However, this abundant, reliable source of energy is at risk with the wind energy Production Tax Credit (PTC) scheduled to expire. By choosing to extend the PTC, Congress would support the production of reliable, affordable and clean energy.

    IN terms of production, U.S. wind energy recently surpassed 50 gigawatts in installed capacity. This means that American wind power now produces enough energy to power 12.8 million households –the equivalent of all the homes in Nevada, Colorado, Iowa, Ohio and Michigan combined.

    Looking to the future, according to a Department of Energy study (DOE), by generating 20% of America’s electricity from wind by 2030 – a goal the industry is ahead of schedule to meet – would support roughly 500,000 good jobs in the U.S., with an annual average of more than 150,000 workers directly employed by wind companies.

    David Ward, American Wind Energy Association

  • Re: comment # 1, You are right, but…., this article isn’t about NIMBY, so your comment is not of any value to this discussion.

    Re: comment # 2, Doc, I NEVER said tax credits and subsidies are the same thing. I said let’s “pretend” that they are. But, call PTC what you will, it’s still a subsidy. As Daniel Simmons says, “The Wind Production Tax Credit Is Such a Large Subsidy That Wind Generators Give Away Their Power To Continue to Collect the Subsidy.” That quote, BTW, comes from one of my sourced references.

    Re: comment # 3, David Ward, a subsidy is a subsidy is a …. I have NEVER been against the wind energy industry. In fact, I think it’s great. The problem I have is being forced via subsidies to participate. If the industry is so great, as your comment suggests, then why can’t the industry survive without subsidies? I could even endure start-up subsidies, but when will they ever end? The ultimate question I’m asking is, after 25 years, when can the wind energy industry stand on its own?

    You say, “According to Navigant Consulting, 37,000 Americans stand to lose their jobs by the end of the first quarter of 2013 if Congress does not extend the PTC.” That may be true (I will not argue with you or Navigant), but why do you think it acceptable for me to be forced to subsidize these jobs? Subsidizingis fine if I choose to. Forcing me to subsidize is another matter entirely.

  • Dr Dreadful

    I NEVER said tax credits and subsidies are the same thing. I said let’s “pretend” that they are.

    Not until three paragraphs after saying that the PTC was a subsidy, you didn’t.

    But, call PTC what you will, it’s still a subsidy.

    Try to wriggle out of it how you will, Warren, you’re still calling a tax credit a subsidy in an article entitled “Tax Credits and Subsidies Are Not the Same Thing”. And then to support your case you use as a citation an article by someone who quite clearly does think they’re the same thing.


  • Re: comment # 5, Doc, I said, “But let’s pretend, for a moment, that subsidies and tax credits are the same thing.” Do you know what the word “pretend” means?


  • Oh, the stupid… it burns.

  • Igor

    Economically speaking subsidies and ta credits are the same, but politically speaking they are quite different. Tax credits are built into the tax code and stay there until revoked or changed, but subsidies must be renewed by the legislature every budget cycle so they are more tenuous.

    Businesses prefer tax credits because they are pretty permanent and it takes a lot of effort to revoke them. By contrast, subsidies may simply lapse.

    Thus, the oil and coal companies that control our politics always specify tax credits for oil to their slaves and drones in congress, while they demand explicit subsidies for their hated enemies (like wind and solar) so that simple inaction will nullify them.

    But economically speaking they are the same. It’s just a matter of a minus sign on the revenue side of the ledger or a plus sign on the outgo side.