by Richard Caperton and Stephen Lacey
The Wall Street Journal released another error-riddled editorial against the wind industry today calling for an end to the production tax credit. The piece is so bad — and features such a broad range of spin and inaccuracies — it deserves a special, point-by-point debunk.
The WSJ starts off by incorrectly describing how renewable energy tax credits work, almost immediately destroying editorial credibility:
Congress finally ended decades of tax credits for ethanol in December, a small triumph for taxpayers. Now comes another test as the wind-power industry lobbies for a $7 billion renewal of its production tax credit.
The renewable energy tax credit—mostly for wind and solar power—started in 1992 as a “temporary” benefit for an infant industry.
Firstly, the production tax credit is not used for solar power — and it never has. Solar and wind power have different characteristics and thus require different tax treatments. This may seem like a small point, but if WSJ editors are going to rail against these tax credits, they should be able to understand what they’re talking about.
Nope. There are more factual errors on these tax credits:
The “1603 grant program” pays up to 30% of the construction costs for renewable energy plants (a subsidy that ended last year but which President Obama calls for reviving in his budget). Billions in Department of Energy grants and loan guarantees also finance the operating costs of these facilities. Wind producers then get the 2.2% tax credit for every kilowatt of electricity generated.
The tax credit is 2.2 cents per kilowatt-hour, not “2.2% … for every kilowatt.” This deserves a correction. Seriously, the WSJ shouldn’t have people writing about these issues who can’t tell cents from percent and kilowatt-hour from kilowatt. This is a joke.
And let’s remember that one justification for the tax credit is to makeup for the fact that taxpayers are bearing the harm from fossil fuels — see Economics Stunner: “Oil and Coal-Fired Power Plants Have Air Pollution Damages Larger Than Their Value Added.” Taxpayers are effectively subsidizing polluting forms of energy through the healthcare system!
The 1603 program is also misrepresented here. The WSJ makes it seem like companies were taking advantage of both the grant program and production tax credits at the same time. In fact, the grant was created to take the place of a tax credit during the height of the economic crisis when the tax financing market imploded.
The characterization of Senator Bingaman’s clean energy standard is also ludicrous:
Twenty years later, the industry wants another four years on the dole, and Senator Jeff Bingaman of New Mexico has introduced a national renewable-energy mandate so consumers will be required to buy wind and solar power no matter how high the cost.
By claiming that a national target will force utilities to buy renewable power “no matter how high the cost” is factually wrong. The CES has an price ceiling of 3 cents per kwh for clean energy credits. The WSJ is intentionally misleading its readers about the facts of this bill. The editorial board should be embarrassed.
But they clearly aren’t:
The truth is that those giant wind turbines from Maine to California won’t turn without burning through billions upon billions of taxpayer dollars. In 2010 the industry received some $5 billon in subsidies for nearly every stage of wind production.
This is no different from other new industries. These are smart government investments in our energy future that have successfully lowered the cost of wind power by 90 percent since the 1980’s. Contrast that to tax credits for oil — a sector where prices continue to go up in spite of $4 billion a year in tax credits.
A 2010 New York Times investigation found that “oil production is among the most heavily subsidized businesses, with tax breaks available at virtually every stage of the exploration and extraction process”:
According to the most recent study by the Congressional Budget Office, released in 2005, capital investments like oil field leases and drilling equipment are taxed at an effective rate of 9 percent, significantly lower than the overall rate of 25 percent for businesses in general and lower than virtually any other industry. And for many small and midsize oil companies, the tax on capital investments is so low that it is more than eliminated by various credits. These companies’ returns on those investments are often higher after taxes than before.
But the WSJ would never dare mention that. Its target is wind:
What have taxpayers received for this multibillion-dollar “investment”? The latest Department of Energy figures indicate that wind and solar power accounted for a mere 1.5% of U.S. energy production in 2010. DOE estimates that by 2035 wind will provide a still trivial 3.9% of U.S. electricity.
What have we gotten? More than 75,000 people work in the wind industry today — tens of thousands of which are under threat by the looming expiration of the production tax credit. Consistent tax policy has also helped the U.S. build one of the leading global wind turbine manufacturers, GE, attract tens of billions in foreign investment, and bring the cost of wind electricity to well below the cost of new coal.
The DOE projections are based on a no-policy case — which is to say, killing the wind tax credit forever as the WSJ recommends. With consistent support, the DEO said wind can be 20% of U.S. power by 2030 at low cost.
But the WSJ makes it clear that natural gas (which also receives substantial tax benefits) is its solution of choice:
[T]he natural gas boom that has produced a happy supply shock and cut prices by more than half. Most economic models forecasting that renewable energy will become price competitive are based on predictions of natural gas prices at well above $6 per million cubic feet, more than twice the current cost.
Oops! Another error from the WSJ on metrics. That quoted natural gas should be million BTUs or thousand cubic feet, not million cubic feet. This seemingly small mistake is in fact an error of a factor of 1,000.
Every serious person in the energy industry agrees that natural gas prices are unsustainably low. With exploitable gas reserves at about 20 years of current consumption, large gas companies shutting down wells because they can’t afford to operate them at current prices, and numerous proposals to increase exports, prices will likely not stay this low for long.
Let’s get deeper into the subsidy debate, shall we?
The most dishonest claim is that wind and solar deserve to be wards of the state because the oil and gas industry has also received federal support. That’s the $4 billion a year in tax breaks for oil and gas (which all manufacturers receive), but the oil and gas industry still pays tens of billions in federal taxes every year.
The wind industry also pays taxes, and will well into the future. This is silly.
It’s also ridiculous to claim that oil and gas deserves these subsidies because they’re something that “all manufacturers receive.” Factually, only extractive industries benefit from percentage depletion. Oil and gas are also different from other manufacturers in that they fundamentally have to operate in specific locations: where the oil is. In this sense, they’re more like electric utilities, which are specifically excluded from the manufacturing tax deduction.
In order to inflate the per-unit subsidy of renewables, the WSJ points to a study requested by anti-clean energy members of Congress that featured very narrow parameters:
Wind and solar companies are net tax beneficiaries. Taxpayers would save billions of dollars if wind and solar produced no energy at all. A July 2011 Energy Department study found that oil, natural gas and coal received an average of 64 cents of subsidy per megawatt hour in 2010. Wind power received nearly 100 times more, or $56.29 per megawatt hour.
As we’ve pointed out numerous times, taking a snapshot of energy spending on technologies with lower penetrations during the height of stimulus spending is an easy way to inflate subsidies per unit of energy. This does nothing to factor in the long-term impact of subsidies that got the mature oil and gas sectors to where they are today.
In fact, at the beginning of the study that the WSJ references, the agency admits up front that the findings were skewed:
Focusing on a single year’s data does not capture the imbedded effects of subsidies that may have occurred over many years across all energy fuels and technologies.
To top off the absurdity in this op-ed, the WSJ tries to shame Republicans into voting against wind subsidies — wait for it — because they didn’t give them enough in campaign contributions!
In the House 18 Republicans have joined the 70-Member wind pork caucus. Someone should remind them that in 2008 and 2010 the wind lobby gave 71% of its PAC money to Democrats.
Is the WSJ seriously suggesting that Republicans should only support industries that donate to their campaigns?
This is absolutely absurd. Republicans supporting the production tax credit for wind are doing so because of the tens of thousands of jobs the industry has created. Meanwhile, no credible analysis has shown this tax credit has destroyed jobs or dramatically raised the price of electricity.
Despite the endless barrage of misinformation on climate and energy from the WSJ over the years, it is still shocking that it would try to get away with such a preposterous set of claims.
The production tax credit is a vital tool that will help us reduce pollution while expanding the wind industry, building new manufacturing and increasing employment in the process.
Richard Caperton is Director of Clean Energy Investments at the Center for American Progress. Stephen Lacey is a writer with Climate Progress.