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Uncertainty Over Tax Credit Hurting Wind Industry

J. Mijin Cha

Here’s what happens when partisan politics takes over policy making: a thriving industry comes to a screeching halt. In 2011, the wind industry was responsible for over 30 percent of all electric generation capacity added. The 6,800 megawatts added was a 31 percent increase over 2010 and lifted the total wind power generation in the U.S. to 50 gigawatts, enough to power 13 million homes. In other words, the wind industry was growing continually and consistently. The growth of the wind industry was a direct result of the federal Production Tax Credit, which provided a 2.2 cent per kilowatt-hour tax credit for wind power. As the graph below shows, since the tax credit was introduced in 1992, the cumulative capacity of the industry grew steadily.


The graph shows that in the first few years after the tax credit, the industry grew slowly but after attracting more investment, production really took off. This is a great example of smart government policy--using targeted incentives to encourage the growth of new, emerging industries.

Even though the effectiveness of the tax credit was clear, Congress let it expire at the end of last year, along with three others targeted towards renewable energy. We’ve highlighted often how the renewable energy sector is at a disadvantage because their incentives must be renewed annually while incentives for fossil fuels are written into the tax code and renew automatically. This creates market uncertainty that dissuades investment.

Now, we see how much this (in)action hurts the industry. In the second quarter of this year, clean energy jobs creation increased but the overall job creation potential was hindered by a nationwide slowdown in the wind industry. As predicted, the uncertainty in future federal support is driving away investors.

What was an example of a very good government policy has now turned into the very definition of bad government policy. The tax credit allowed the industry to grow and it should be continued until the industry can stand on its own, as in the case of ethanol subsidies. Instead, by introducing market uncertainty when the industry is starting to take off, Congress is seriously hindering the future potential of wind.

At the same time, Congress continues to funnel money to the fossil fuel industry, which is neither emerging nor financially struggling, as evidenced by big profits. This level of subsidies allowed dozens of energy companies to post a negative tax balance from 2008- 2010, somehow transferring a tax responsibility of $17.3 billion into tax benefits of $6.5 billion, a $24 billion windfall.

So, Congress refuses to extend a tax credit to an industry that directly creates new jobs, bring us closer to energy independence and helps decrease our carbon emissions, but they throw billions of dollars at a dirty industry that continually makes record profits. I’m not sure how many times I can say this but: How does this make sense?