Wind Power: Hayward discussion of subsidies falls short

The American Enterprise Institute’s (AEI) Steven F. Hayward had a blog post recently discussing the fact that in recent years, federal incentives for clean energy have risen relative to those for fossil fuels.

Interestingly, Mr. Hayward states that incentives are critical to clean energy sources like wind energy and solar power, but that the fossil fuels industries would be little affected if their subsidies were withdrawn. This, of course, begs the question of why the latter are still in place, and why the oil and gas industries defend them so energetically.

Whatever the reason for that might be, as we have pointed out here on a number of occasions, incentives should be viewed in a historical context. Government funding support has helped all of our domestic energy industries to grow and produce the energy that our economy needs to function and prosper. The question is whether current incentives for renewable energy are out of line with those that have been previously provided for other energy sources.

Quoting from a recent blog post:

For new energy technologies to gain a foothold in [the] marketplace so that the U.S. can diversify its energy portfolio and reduce its vulnerability to fuel price shocks, some degree of initial support is needed. As one particularly informative study by DBL Investors states: “Current renewable energy subsidies do not constitute an over-subsidized outlier when compared to the historical norm for emerging sources of energy. For example: … the federal commitment to [oil and gas] was five times greater than the federal commitment to renewables during the first 15 years of each [subsidy’s] life, and it was more than 10 times greater for nuclear."

Beyond direct subsidies, past and present, there are the additional "hidden costs" of fossil fuels, largely in the form of health care costs due to air and water pollution. Every once in a while, some organization looks at these costs, and the numbers are always large. Last year, for example, a group of public health and environment experts released a study, published in the Annals of the New York Academy of Sciences, finding that accounting for the full costs of coal would bring its market price to 17.8 cents per kilowatt-hour. Similarly, a National Academy of Sciences study released in 2008 found that fossil fuels annually cost Americans $120 billion in health damages alone. Failing to account for these costs is a subsidy to fossil fuels, reducing their market prices and giving them a significant competitive advantage over nonpolluting energy sources. Yet while the Journal’s editorial and opinion pages regularly denounce incentives for clean energy technologies such as wind turbines and solar energy, health costs relating to fossil fuels rarely if ever rate a mention.

Perhaps more importantly, incentives for wind farm have led to dramatic growth and helped to create an entire new manufacturing industry in the U.S. Today, 461 factories from coast to coast manufacture wind turbines or their components, and despite the uncertainty created by the impending expiration of the federal wind energy production tax credit (PTC), 19 new facilities were opened in 2011. The trend of new manufacturing in the U.S. has pushed the domestic content of wind turbines from less than 25 percent prior to 2005 to approximately 60 percent in recent years, according to U.S. International Trade Commission data and U.S. Department of Energy analysis.

With wind power today, we are seeing a virtuous circle–developing more wind farms is leading to more demand for turbines and turbine parts, spurring the development of a new manufacturing industry, creating new jobs, and fostering increased competition, which results in lower costs. That virtuous circle began with a key federal incentive, the Production Tax Credit (PTC). The PTC is scheduled to expire at the end of this year and should be extended by Congress as soon as possible to avoid an unnecessary tax increase on a growing industry that has been one of the few sources of new manufacturing jobs.

Tom Gray,