EIA studies on energy incentives distort value of spending on wind energy

The report on 2010 energy incentives from the Energy Information Administration (EIA), requested by Representatives Jason Chaffetz (R-UT), Marsha Blackburn (R-TN), and Roscoe G. Bartlett (R-MD), is expected to be released this week. It seeks to update a previous report entitled "Federal Financial Interventions and Subsidies in Energy Markets 2007," but is likely to suffer from the same flawed methodologies put forward in the original study: analyzing only a single year of energy incentives is a poor way to judge the support afforded by the U.S. government to many kinds of energy sources for decades.

Consider a coal-fired power plant installed in 1965 and still generating electricity today. That power plant was subsidized when it was installed, and the mining and transportation of its fuel have been subsidized in the 45-plus years ever since then. If you look at the plant’s incentives in 2010, they are only a tiny slice of the total federal expenditure—the cost of the plant was amortized long ago.

Now consider a wind farm installed in 2008. The production tax credit it received in 2010 was part of the basis for financing its construction. Once that credit is used up (in 2017), it will receive no further incentives (because it uses no fuel). Comparing its incentives with those provided to a 45-year-old coal plant is comparing apples to oranges.

"Tax incentives have been the most effective means of bringing new energy sources to market," said Rob Gramlich, Senior Director of Public Policy for AWEA. "Previously they brought us much of our domestic oil and gas supply, including the new shale gas resources. They typically apply in the early and middle stages of development, so it’s not surprising that in any given year, new sources receive more than conventional sources."

The updated request to EIA called for an analysis of fiscal year 2010, continuing the same narrow focus that limited the earlier study. Analyzing only a single year of energy incentives inevitably gives a misleading representation of the support afforded by the U.S. government to all kinds of energy sources for decades. As the Congressional Research Service states, "For more than half a century, federal energy tax policy focused almost exclusively on increasing domestic oil and gas servers and production. There were no major tax incentives promoting renewable energy or energy efficiency."[1]

– The method of comparing revenue loss and incentive outlays in a single year to generation from all capacity installed over the past 50-60 years actively biases the results negatively against sources that were installed recently.Comparing all generation to revenue loss & outlay provided only in a single year, as the EIA does, distorts the results. To provide an accurate comparison, it is necessary to capture the flow of all revenue loss and outlays provided over the same period in which electricity capacity was actually installed and was likely to receive government support such as tax credits, risk insurance, R&D, and other incentives.

– Electricity incentives provided in a single year are more appropriately compared to the new electricity capacity installed in the same year, to show return on investment. Wind power accounted for 35% of all new electricity capacity installed in 2007, but according to the EIA 2007 study, it received just 12% of Federal electricity support in that year. On the contrary, no new nuclear electricity capacity was installed, yet 22% of Federal electricity support went toward nuclear power. Coal accounted for approximately 7% of the new capacity in 2007, yet received 51% of the Federal electricity support.

– An October 2007 GAO study found that federal spending on renewables is comparatively low. This study found that from fiscal year (FY) 2002-2007, Federal research and development funding was: $6.2 billion for nuclear energy, $3.1 billion for fossil fuels, and $1.4 billion for all renewables combined. With respect to tax expenditures, GAO identified $13.7 billion in Federal support for fossil fuels and only $2.8 billion for all renewables, including wind turbines.[2]

– The steady and significant government support provided over the past 50 or more years has allowed generation from sources like nuclear, coal and even hydro to flourish and become major electricity sources for the U.S. The majority of generation produced from these sources in the year 2007 actually comes from capacity installed many decades prior. The EIA report does not account for any of the federal incentives provided during actual installation of these power plants.

To address the misguided directions the Energy Information Administration received for these studies, whose results are therefore not useful, the American Wind Energy Association requests that additional work by the EIA on energy subsidies include:

– The real dollar value of historical incentives, by energy source

– The real dollar value of the cost of energy incentives current in law through the end of the U.S. government’s budget reporting period

– The full scope of incentives to account for all types of government intervention to support energy development, including regulatory intervention through law or agency, tax expenditures, direct expenditure, risk protection and other insurance.

By setting artificial parameters for how this information is presented, the EIA’s reports purposefully leads the reader to believe the renewables industry is oversubsidized. A real-dollar-value comparison of historical incentives would demonstrate that this is false conclusion, while also highlighting the tremendous effects that incentives can have to bring about the maturing of energy industries – as they have done for oil, gas, nuclear and coal.


[2] Government Accountability Office. Federal Electricity Subsidies. Information on Research Funding, Tax Expenditures, and Other Activities that Support Electricity Production. 2007. www.gao.gov/new.items/d08102.pdf