As part of the fiscal cliff bill, Congress renewed the production tax credit (P.T.C.) this past January. It “is [currently] worth 2.2 cents per kilowatt-hour of energy produced by new wind installations [and will last] for their first 10 years of operation” (Kaufmann). The origin of the P.T.C. is derived from the Energy Policy Act of 1992; which offered “tax incentives and marketing strategies for renewable energy technologies in an effort to encourage commercial sales and production” (Wiki). Under this act the P.T.C. was originally 1.5 cents per kilowatt-hour, but has since been adjusted annually for inflation. Due to the uncertainty that the tax credit would continue towards the end of last year, the wind industry took a turn for the worst and left many developers idle and several factories shutdown. According to the American Wind Energy Association “turbine-parts manufacturing plants laid off thousands of workers in recent months, and developers put new projects on hold, threatening another 37,000 jobs” (Kaufmann).
Diane Cardwell’s article in the New York Times Renewed Tax Credit Buoys Wind-Power Projects explains how the production tax credit has impacted the wind industry in the past and how the recent extension will affect wind-energy producing firms. (more after the jump)Lawmakers hope the extension will help continue to expand the industry, but according to Cardwell the uncertainty of future P.T.C.’s leaves the wind industry’s future in doubt. She believes that the tax credit extension in recent years instead of creating a new flow of jobs and projects has instead caused a shuffle within the industry. Many developers “are mainly dusting off projects they already had in the works, rather than seeking out new business, while others are trying to sell off unfinished projects” (Cardwell). Cardwell does mention how “over the last decade, with a few exceptions, the wind industry has grown, attracting on average nearly $18 billion a year in private investment since 2008” (Cardwell). But she insists that this growth is “shackled” to the tax extension which in the past has rushed companies to complete projects in time to qualify for the credit. The tax credit is considered a government subsidy, one that Cardwell believes in the future will bring the price of wind power close to that of fossil fuels.
The main issue: Question to class
The controversy here is: is the tax credit extension helping the wind industry in a way that one day the industry will be able to survive without government subsidies? Or is the extension only harming the industry allowing the industry to flourish during the credit period and fall during a lapse of the credit?
The main issue I see here is the uncertainty factor. Planning and developing a wind project takes a lot of time and money. Due to the uncertainty that the production tax credit will be available, businesses in the wind industry become hesitant to start new projects. With this in mind, I believe congress’ short-term extensions of the P.T.C. are ineffective and only harm the industry. Thinking at an aggregate level, the P.T.C. traps the firms in the wind industry forming a business cycle that is powered solely by government subsidization. I am not saying that government subsidization is bad, it does provide jobs and in this case is invested in a pro-environment industry. However, in this setting when the P.T.C. is set firmly in place the wind industry experiences strong growth, and when congress lets the P.T.C. expire (considered a lapse in the credit) it causes a dramatic slowdown in the wind industry. This in return forces many companies to lay off workers and stall projects instead of expanding the labor force and creating new projects. Without the expansion within the industry, focusing on the long run, it makes me think that it must be close to impossible for the wind industry to grow at a natural rate.
Graph Example (Provided by UCS)
The above graph exemplifies how letting the P.T.C. expire negatively affects the steady growth of wind installations occurring in the United States. “Congress has extended the provision five times and has allowed it to sunset on four occasions. This "on-again/off-again" status contributes to a boom-bust cycle of development that plagues the wind industry. In the years following expiration, installations dropped between 73 and 93 percent, with corresponding job losses” (UCS).
2012 Data (Provided by the American Wind Energy Association)
- All renewable energy sources accounted for over 55% of all new generating capacity in the United States
- The United States wind industry has added over 35% of all new generating capacity over the past 5 years, second only to natural gas, and more than nuclear and coal combined
- The United Sates wind power capacity represents more than 20% of the world’s installed wind power.
The 2012 data above provided by the (AWEA) doesn’t prove that the wind industry is growing at a steady rate. However, it has made one thing clear; and that is that the United States is definitely pushing for more reliability of renewable energy sources.
AWEA. (2013). Industry Statistics. United States: American Wind and Energy Asociation.
Cardwell, D. (2013, March 21). Renewed Tax Credit Buoys New Wind-Power Projects. Retrieved from New York Times Online: http://www.nytimes.com/2013/03/22/business/energy-environment/a-tax-credits-renewal-lifts-wind-projects.html?ref=earth&_r=0
Kaufmann, K. (2013, January 02). Wind Energy Tax-Credit Extension Part of 'Cliff' Deal. Retrieved from USA Today: http://www.usatoday.com/story/news/nation/2013/01/02/fiscal-cliff-wind-energy-extension/1804447/
Union of Concerned Scientist. (2013, January 04). Clean Energy. Retrieved from UCSUSA website: http://www.ucsusa.org/clean_energy/smart-energy-solutions/increase-renewables/production-tax-credit-for.html
Wikipedia. (2013, April 09). Tax Credit. Retrieved from Wikipedia: http://en.wikipedia.org/wiki/Tax_credit
Wikipedia. (2014, March 14). Energy Policy Act of 1992. Retrieved from Wikipedia: http://en.wikipedia.org/wiki/Energy_Policy_Act_of_1992