Rep. Camp’s Bold Move: End of the Wind PTC (and other energy subsidies too)

Members of the American Wind Energy Association (AWEA) descended on Capitol Hill last week for  a two-day member-only marathon to educate Congress on why the wind production tax credit (PTC) needs to remain a priority for American taxpayers. The PTC expired at the end of 2013.

Mark Albenze, CEO of Siemens’ wind power business in the Americas and a member of AWEA’s Board, touted his expectation of receiving a positive response from D.C. lawmakers.  ‘We’re going to ask for as long an extension [of the PTC] as we can get to bridge the gap  until we get a comprehensive energy policy,” he said.

But by the end of the second day, the future of the PTC dimmed.

On Wednesday, House Ways and Means Chairman Dave Camp (R-MI) released his long-anticipated proposal to reform the U.S. tax code which offered no consideration for reinstating the PTC. But that’s not all. According to the bill, the uncapped, 20+-year tax credit, which currently stands at 2.3¢/kWh[1], would no longer be adjusted annually for inflation which means that projects now receiving the PTC would see their subsidy reset back to 1.5¢/kWh.

A year ago, Chairman Camp’s proposal would have brought cries of dissent. But much  has changed since January 2013 when Congress squeezed through the last one-year, $12 billion extension.  For many outside of big wind, the PTC is already dead given the highly-charged political year we’re in. Add to this the very liberal IRS interpretation of the timetable for projects qualifying for the PTC, especially for projects that were already permitted at the end of 2013, any further extensions would be excessive.

Even without the PTC, American taxpayers are still on the hook for over $20 billion in production tax credits due over the next decade for qualified wind energy facilities, both existing and those to be built. This is in addition to the nearly $20 billion in Section 1603 cash grants awarded wind projects in the period from 2009-2013[2].

Groups on both sides of the political spectrum agree the PTC should go.

In the same week, the progressive-leaning Economic Policy Institute advocated for an end to the wind PTC along with other tax incentives. In a detailed blog penned by Joshua Smith of EPI, Smith implores Congress to stop the “policy drift of regularly rubber-stamping the entire suite of tax extenders” without first investigating each provision’s effectiveness or offsetting the costs.

According to Smith, the four largest tax provisions which, taken together, represented 60% of the most recently passed extender package, were:

(a) the research and experimentation tax credit (the last two-year extension cost $14.3 billion);

(b) the renewable electricity production credit ($12 billion);

(c) the active financing exception ($11.2 billion); and

(d) the deduction for state and local sales taxes ($5.5 billion).

Each of these tax credits, Smith wrote, are problematic in their current form “due to their regressivity, inframarginality (i.e., providing benefits to individuals or businesses that act in ways they would have acted even without the tax provision), inefficiency, or all three.

Regarding the PTC, he goes on to say:

“The expanded PTC could be viewed as a successful incentive that led to societally beneficial behavioral changes. However, this tax benefit operates within a web of overlapping energy production incentives that often work at cross purposes; currently, the PTC is one of 42 different tax breaks to aid certain energy technologies, 25 of which regularly expire. Moreover, this complexity leads some clean energy technologies to be favored over others.”

Wind turbine manufacturers signaled two years ago that the industry was preparing for a market without the PTC through technology advancements and lower costs. As long as taxpayers shield the wind industry from the realities of competition, however, such improvements will be slow in coming, and the industry will remain reliant on public handouts.

Milton Friedman once warned: “There is nothing so permanent as a temporary government program.” And yes, we have a long way to go before Chairman Camp’s tax reform bill is final. No doubt the debate over tax-extenders will be rigorous. Still, the new blueprint is a rare opportunity for American taxpayers to once and for all eliminate the near-permanent temporary tax credits.

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[1] The PTC was established by the Energy Policy Act of 1992 and initially set at 1.5¢/kWh. The credit is adjusted annually for inflation and today stands at 2.3¢/kWh.

[2] These figures do not include the recent abuses reported by the IRS Inspector General where renewable energy projects were found to be receiving both the cash grant benefit and the PTC