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Congress puts renewable energy at risk
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Wind turbines from the Maple Ridge Wind Farm tower
over a farm in Lowville, N.Y., Monday, Aug. 4, 2008.
(AP Photo/Mike Groll)
Congress should consider renewable energy tax credits before they expire at the end of the year. Congress keeps playing a game with the energy credits by only authorizing them for a year or two at a time. This way they can show that government spending will drop in later years because they don’t count tax expenditures that expire.
This creates a big problem for manufacturers and producers of renewable energy. Manufacturing large wind turbines or solar cells takes a lot of upfront investment of capital and time. Manufacturers need to be reasonably assured that the market for their products will be there in a couple of years for them to take the investment risk.
Wind and solar power are still too expensive to compete with traditional fossil fuel sources. They need the tax credits to be competitive. The idea is that by providing tax credits now, the wind and solar companies will be able to improve the technology and generate greater efficiencies to lower unit costs over time. The cost of fossil fuels should continue to rise due to increasing scarcity and environmental concerns. Hopefully, wind and solar will one day become cost competitive on their own, at which time the tax credits will no longer be needed. Countries like Germany and Spain adjust the amount of the credits they provide. As costs for renewable energy have gone down, these countries have reduced the tax credits and incentives, but still provide rich enough credits to keep the industry going.
Congress has let the production tax credit expire three times over the last decade. Each time, investments in wind energy fell. With congress starting and stopping the program on almost a yearly basis, it is difficult for investors to be assured that the market will exist. Greg Wetstone of the American Wind Energy Association says his group is predicting a loss of 76,000 jobs and $11.4 billion in investment if Congress allows its production tax credit to expire.
It would be much better to have a long term credit program as this would provide assurance that there will be a market for renewable energy. Credits could be adjusted annually so that they are gradually reduced over time until the industry can be cost competitive on its own.
Until the end of this year the government is paying 30% of the cost for businesses to invest in solar power. It is estimated that the cost to extend this credit for 10 years would be slightly less than $2 billion dollars. A tax credit of up to $2,000 is provided to homeowners who install solar systems. Estimated 10 year cost is less than $1 billion. Together these credits add up to less than $300 million per year.
Wind power producers receive a production credit of 1.9 cents per kilowatt-hour (Kwh). Since there is considerably more wind power than solar power produced, this credit cost the country about $7 billion per year.
So why hasn’t congress passed a long term renewable energy tax credit? Partisan gridlock! The Democrats are insisting that the tax credits must be paid for by raising revenue elsewhere. They have looked at funding the credit by cutting subsidies to big oil companies. President Bush is dead set against increasing taxes on the oil industry. Democrats have also blocked energy development, like off-shore drilling that could be used to generate revenue to pay for renewable tax credits (Paris Hilton Plan).
George Bush has an approval rating of only about 30%. Congress is even worse at about 20%. Congress and the administration are just not getting the job done.
