Wind Energy Subsidies vs. Oil and Gas Tax Deductions

Institute for Energy Research, 8-3-2020

Key Takeaways:

  • Wind power is not a new technology. It has been around for centuries. The US attempted to develop a wind industry in the 1960’s only later to see its stagnation.
  • The laws of about half of the states require a certain percentage of electricity to come from qualified renewable energy sources (generally wind and solar technologies) and federal laws have given large subsidies to the industry.
  • According to the Energy Information Administration (EIA), federal subsidies for wind energy increased 10-fold between fiscal year 2007 and fiscal year 2010—a three year period.
  • Between 2007 and 2010, wind generation increased 175 percent, increasing from a 0.8 percent share of generation in 2007 to 2.3 percent in 2010.
  • But to get there, the government had to spend $5 billion in subsidies in fiscal year 2010 alone. For every megawatt hour of wind energy generated, the taxpayer paid $56, compared to 64 cents for coal-fired and natural gas-fired generation.
  • While the tax credits were supposed to be temporary to allow for a young industry to get off its feet, they have now been in place for 28 years—more than enough time for the industry to reach adulthood. The wind production tax credit has been extended a dozen times since 1999.
  • The production tax credit obscures the true cost of generating electricity by forcing tax payers to subsidize it.
  • Ratepayers are essentially paying twice for the cost of generating electricity—once for wind turbines that generate the wind power and then for the natural gas- or coal-fired power that provides the back-up electricity when the wind isn’t blowing.
  • The U.S. Treasury estimates that the existing form of the Production Tax Credit will cost taxpayers $40.12 billion from 2018 to 2027, making it the most expensive energy subsidy under current tax law.
  • Frequently, when the issue of extending wind and solar tax credits comes up, environmentalists and some lawmakers point to “taxpayer subsidies to big oil companies,” as a reason to continue them. But these are tax deductions, not credits, that are mainly targeted to small independent oil and natural gas producers.