Governor Romney is right: End the wind production tax credit


U.S. Representative Mike Pompeo, a Republican who represents the Kansas fourth district, contributes the following article on the harm of government involvement in energy markets, wind power specifically. Pompeo has written extensively on energy; see Pompeo on energy tax simplification, Era of energy subsidies is over, and Free market energy solutions don’t jeopardize national security. He has also introduced legislation to end all tax credits for energy, H.R. 3308: Energy Freedom and Economic Prosperity Act.

There’s been a steady drumbeat from those seeking an extension of the wind production tax credit. For many reasons, including some that former Massachusetts Gov. Mitt Romney has carefully highlighted in his opposition, this is a bad idea.

First, an extension continues this unsettling policy trend in which citizens are asked to bear all the risks and gain none of the rewards. This socialization of risks and privatization of profits guarantees disasters, for corporate boards and even their federal overseers can become careless and, in some instances, reckless. This fact was clearly demonstrated by the Solyndra debacle — when a company with close ties to the Obama administration lost more than a half billion dollars of taxpayers’ money. At the heart of that fiasco was both the company and the administration’s indifference to the taxpayers.

Solyndra also revealed something else damaging about federal involvement in markets: the potential for political corruption. It’s clear that the Obama administration became emotionally, and inappropriately, invested in the fortunes of one company and one sector. When that happens, the system is compromised, cronyism flourishes and corruption is inevitable.

President Barack Obama talks about the need to “invest” in alternative energy sources. But the reality is that he is not investing his money — he’s spending yours. I’m not sure that too many Americans would choose the president to manage their retirement accounts. His record — a jobless and exceedingly shallow recovery — is not good.

With this production tax credit extension, the wisdom of the investment is especially dubious. Wind companies and their lobbyists have, for the last year, been telling all who would listen that the expiration of the tax credit could spell doom for their industry. Obama repeats this claim regularly on the campaign trail.

But what does that say about the industry? If you need a tax credit to compete, you are probably not that competitive.

Moreover, the tax credit is not de minimis for either taxpayers or companies that are lobbying for it. It will cost the taxpayers more than 12 billion dollars inside the budget window. Worse, the credit is set at 2.2 cents per kilowatt hour. Just to compare, the national average for produced power is around 6 cents per kilowatt hour. That means that the wind industry gets an almost 40 percent subsidy for each unit it produces. How many companies would like that?

You also have to remember that wind power enjoys a mandate in more than 30 states. That is, regardless of cost — or price to ratepayers — utilities must use wind or other renewables for specific amounts of power generation. So, the wind companies enjoy not only a tax credit, but a must-use mandate as well — regardless of cost.

It would be one thing if we were running out of natural gas and confronted a real national requirement to use alternative energy. But it’s the reverse. The United States has more traditional energy resources than anywhere else on Earth, according to the Congressional Research Service. With the surge in production from the shale formations, a new Barclays report just concluded, natural gas will likely dominate wind in the marketplace for the foreseeable future.

Even now, in places like Williston, N.D., companies are hiring everyone who can get there to work on rigs or in ancillary jobs. If the president is genuinely worried about jobs, maybe he should visit the Bakken in North Dakota, or the Marcellus in Pennsylvania or the Eagle Ford in Texas.

Using wind power to generate electricity is not a new idea. The first windmills used to generate electricity went up in the 19th Century. The production tax credit is also not a new idea. It is now about 20 years old.

Romney’s opposition to continuing the wind subsidy is absolutely correct. At some point, an industry has to either succeed or fail on its own merits.

For wind companies, we are at that point now.


5 responses to “Governor Romney is right: End the wind production tax credit”

  1. Forget about federal government involvement in energy, agriculture or anything else except what the U.S. Constitution allows. It’s almost impossible to see what anything the USG has done lately that has helped the economy or the people.

    With that said, you might want to read this book out cause it’s about Americans finally taking a stand against federal tyranny. It’s about each of us so I recommend it.

    Kansas will go red this year, as well as the midwest states, but I am not sure Romney can neutralize the 45 electoral votes from California or the 40+ electoral votes from NY. The east/west coast states are at least 40% of the electoral votes. Great article.

  2. Melissa Bower

    Wind power companies are not selling hammers and nails. They are selling our ability to live in an energy independent society. I realize their solution isn’t quite perfect, but to suggest that there is no public benefit to producing wind power is not only irresponsible, it’s dangerous. It’s dangerous to depend on foreign oil to support our way of life. It’s dangerous not to diversify our energy needs with natural gas and wind power. There is a new type of voter in Kansas, Mr. Pompeo, and you’re going to have to do more to convince him than scare tactics about big, bad Obama. I can see justification for taxpayer subsidies to support energy independence in the same way it was necessary to subsidize farming to increase the country’s food supply in the 1930s and 1940s. If you think you can shop around for a better deal to take advantage of Kansas’ natural wind resource as an energy source, please do so. But don’t back out of wind power subsidies simply because our president wants the opposite.

  3. Larry

    As Long as our Government will Subsidize any Industry,,, Wind power should be the leading one. We continue to Subsidize the Oil Industry who make Record Profits. Wind Energy is trying to get started. My power company requires that I pay a Service Charge, Delivery Charge, Gas System Reliability Surcharge, Weather Normalization Charge, Gas Hedge Charge, Franchise Fee, PLUS the Cost of Gas. When you add them all together the cost to the consumer has almost doubled, that markup is nearly 100. I can understand why our current Oil & Gas Industry would lobby against Wind Power, fuel oil helps produce our electricity, and some the furnace . If you can delay or halt a competitor you have a successful lobbyist.
    A New Energy Industry does not have the advantage the current Subsidized Energy Companies have.
    I am for getting rid of Subsidies ALL of them but until that happens we need to move Kansas to the front of the Wind Farm Subsidy Trough.

  4. Dot

    Please check your facts on the national average residential customer kwh rate. According to the most recent EIA (Energy Information Administration) it’s 12.12 cents per kwh. A far cry from the 6 cents noted in your article. More information from a non-partisan source on energy can be found here:

    I agree with both Melissa and Larry. Supporting home grown energy by way of a production tax credit is how I prefer to spend my tax dollars.

  5. Mark Richardson

    The wind energy PTC is a federal tax expenditure to incentivise the development of wind energy and is no different in principle than the two most prominent oil and gas tax expenditures; the 100 year old Intangible Drilling Cost (IDC) and Percentage Depletion (PD) tax deductions. The Congressman will likely argue otherwise, but the Charles Koch founded Cato Institute understands the concept of tax expenditures (cost to the US Treasury) being the same regardless of the mechanism to reduce taxes paid.

    The IDC is effectively an interest free loan as most well costs are deductible the first year and PD allows cost basis to be exceeded as the fixed (15%) does not end. The bi-partisan Joint Committee on Taxation estimates the next five years the associated cost to the Treasury of the IDC and PD will be $8.6 billion compared the the wind PTC of $6.8 billion.

    Cato implies Mr. Pompeo should include the IDC and PD as they are germane to his effort to eliminate energy subsidies:

    Getting the government to end meddling in the economy is a noble goal. However, many Kansans are curious why, of all the questionable federal government spending like farm and essential air service subsides, Rep. Pompeo would target wind energy, an obviously important industry in his district.

    Perhaps its time for entities seeking limited government intrusion in the market to ask Mr. Pompeo why he was selective with his proposed energy subsidy ending legislation.

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