The Wall Street Journal weighs in with an editorial today criticizing Senate votes on a variety of energy proposals during yesterday's debate on a major transportation bill in Congress. It all sounds pretty good, but in the real world, things are seldom as simple as they seem. What's overlooked here?
First and foremost, as an emerging industry that is growing rapidly and providing an increasing number of new manufacturing jobs, wind energy needs a stable, predictable tax policy environment to flourish. This point was made more generally, as it happens, in a recent Wall Street Journal op-ed (see WSJ op-ed: 'Want Growth? Try Stable Tax Policy', January 5, 2012). Stability has been sorely lacking over the past decade, with wind power's key incentive, the Production Tax Credit (PTC), never being extended for more than three years at a time. It's hard to believe that the Wall Street Journal would recommend a massive tax increase on an emerging energy industry, wind power, that has been extremely effective at keeping Americans at work and fostering a whole new American manufacturing sector. With the U.S. economic recovery still proceeding at a snail's pace, now is not the time to be boosting taxes on any industry that is growing and providing jobs.
As U.S. Rep. Steve King (R-Iowa) put it in a recent Politico op-ed, “Low, stable tax rates generate jobs and economic growth. This idea has been the bedrock of conservative economic ideology for decades. One industry that represents this essential conservative principle is U.S. wind energy. Low taxes in the form of the federal Production Tax Credit for wind have driven as much as $20 billion of private investment a year into the U.S. economy. Wind power is now one of America’s biggest sources of new electricity and fastest growing manufacturing sectors. It has accounted for more than a third of all new U.S. electric generation in recent years.”
Second, there is the matter of current and past subsidies for fossil fuels and nuclear power. These expenditures have played a major role in helping the United States develop its enormous domestic energy resources, but they have also helped the recipient industries gain a dominant position in the marketplace. For new energy technologies to gain a foothold in that 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 and solar, health costs relating to fossil fuels rarely if ever rate a mention.
Finally, today's Journal editorial speaks highly of an amendment offered yesterday by U.S. Sen. Jim DeMint (R-S.C.), which the Senate rightly rejected. Rather than eliminating all energy subsidies as advertised, the DeMint amendment would have preserved a series of costly tax breaks for the oil and gas industries while eliminating only two that are no longer used.