Production Tax Credit – Time to Get Serious

Domestic wind power has been the fastest growing source of energy in the U.S. for the past several years, adding over 1/4 of all new electric generating capacity in 2010.  And just yesterday, Interior Secretary Ken Salazar presided over the opening of the country’s latest wind farm in Nevada, pushing the total installed wind power capacity in the U.S. over 50 Mega Watts – or enough to power over 10 million homes.  But we’re not breaking out our party hats quite yet.  This is because the Renewable Energy Production Tax Credit (PTC), which reduces the federal income taxes of a qualified tax-paying owner of renewable energy projects based upon the electrical output of its grid-connected renewable energy facilities, is set to expire at the end of this year.  The credit of 2.2 cents per kilowatt-hour (KWh) of electricity generated has been a critical source of financing for wind farm owners, and the uncertain state of its future is causing havoc in the industry.

With the Presidential election only three months away, we’re nearing the zenith of political and partisan fanaticism.  And of course, the state of the domestic economy–specifically the persistent high unemployment rate and the mounting deficit–is top of mind.  Understandably, this has made many lawmakers skeptical about extending or proposing any new tax breaks for business in general.  The basic argument being: if a business or industry can’t float on its own then perhaps it should sink.  Add in the fresh memory of Solyndra, a bankrupt maker of solar modules that defaulted on a federal loan, and the image of America’s renewable energy industry begins to look a little sullied.

*But let’s take pause and dig a little deeper on the issue of tax breaks for the energy industry.  What’s at stake if the PTC is not renewed?  According to the IEA, the cost of generating electricity from coal is between 4 and 5 cents per KWh, while the cost for generating electricity from natural gas is near 8 cents per KWh, and somewhere in the 9 cent range for wind power.  At first glance it may seem like a no-brainer to choose coal and natural gas production and dump renewable subsidies in order to save money.  But there are three critical points that most lawmakers, fossil fuel lobbyists, and energy executives omit when making their argument to dump the renewable energy PTC and “stay the course” with coal and natural gas production.

Coal power plant

1) The fossil fuel industry (coal and natural gas for electricity and oil for fuel) enjoys the world’s most blatant example of benefitting from “externalized costs” or externalities.

An externality is a cost that is not transmitted through prices and is incurred by a party that was not directly involved as either the buyer or seller of the goods or services that caused the cost.  In the case of the fossil fuel industry, each stage in the life cycle of coal, natural gas, or oil—extraction, transport, processing, and combustion—generates a waste stream and carries multiple hazards for health and the environment.  A study published by the New York Academy of Sciences estimates that the life cycle effects of coal and the waste stream generated are costing the U.S. public a third to over one-half of a trillion dollars annually and many of the related externalities of consuming fossil fuels for electricity are cumulative.  Conservative accounting of the associated health and environmental damages doubles to triples the price of electricity from coal per kWh generated, making wind, solar, and other forms of nonfossil fuel power generation, along with investments in efficiency and electricity conservation methods, economically competitive.  This study doesn’t even take into account the longer term cost estimates of adapting to global climate change, which could be minimized through a concerted effort to replace electricity generated from fossil fuel with renewable energy.


Take restaurants or factories for instance.  Restaurants must pay a fee to properly dispose of its cooking grease.  Why?  Because if every restaurant simply dumped its waste down the drains it would cause widespread havoc on cities’ sewer systems and everybody would suffer.  The same goes for industrial factories in the United States.  You may recall the Cuyahoga River in Ohio catching fire in 1969.  It did so because factories and industrial mills that lined the river were largely free to dump their effluent directly into the river.  The fire was literally a watershed moment that helped spur state and federal water pollution laws and regulation, resulting in the Clean Water Act and the creation of the Environmental Protection Agency.  Factories and mills in the U.S. must now pay to properly dispose of their polluting waste.  I don’t think anyone would advocate returning to a time when our urban waterways were literally flammable, yet this is the very situation we find ourselves in with regard to fossil fuel electricity generators and their largely cost free emissions into our atmosphere and the air we breathe. (Image below from


2) The energy field is FAR from even.

Despite being stratospherically profitable, big oil and fossil fuel companies enjoy some of the largest subsidies of any industry in the country – outpacing pharmaceuticals, defense, and even agriculture.  These subsidies come in the form of tax loopholes, write-offs, exploration rebates, and other sophisticated accounting handouts.  The value of these subsidies vary, but a study by the Environmental Law Institute estimated the subsidies to fossil-fuel based sources amounted to over $70 billion from 2002-2008 while subsidies to renewable fuel sources totaled $29 billion.  *However, of that $29 billion in subsidies to renewable energy, only $5.2 billion went to funding the Renewable Electricity Production Credit.  The majority went to biofuels and ethanol, with the alcohol Credit for Fuel Excise Tax costing $11.6 billion and subsidies to support corn-based ethanol costing $5.0 billion.


3) It’s been a popular talking point of some lawmakers to bash renewable energy as an industry that hasn’t produced credible positive effects on the American economy — this is simply wrong.

If we analyze the numbers, we see that wind projects accounted for more than one-third of all new electric generation installed in the U.S. in recent years.  And a study by the Political Economy Research Institute showed that job creation in clean energy outdoes fossil fuels by a margin of 3-to-1 — meaning that every dollar put into clean energy creates three times as many jobs as putting that same dollar into oil and gas.  According to the American Wind Energy Association (AWEA), domestic wind power has already created 75,000 jobs, which could be on the line without a longer term extension of the PTC.


The rhetoric of some lawmakers and fossil fuel execs that the government should “get out of the way” with regard to domestic energy does not pan out when you actually delve into what is going on behind their K Street lobbyists’ closed doors.  A smarter approach would be to weigh the real costs and real benefits of extending the PTC, which would provide a more secure investment climate for renewable energy developers to continue to build clean, home-grown sources of electricity for our country.