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Wind tax credits a no-cost way to avoid greenhouse gas emissions

Wind tax credits a no-cost way to avoid greenhouse gas emissions
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By Elizabeth Salerno, Chief Economist and Director of Industry Data and Analysis, American Wind Energy Association

Michael Goggin, Senior Electric Industry Analyst, contributed to this report.

A new National Research Council (NRC) report out today acknowledges that renewable energy reduces greenhouse gas emissions. However, at least one fossil-fuel-funded group is already misreporting the findings by focusing on the report’s projection of only a small rise in power sector greenhouse gas emissions through 2035 if the Production Tax Credit (PTC) and companion Investment Tax Credit were removed.

Based on a quick look behind the numbers, it’s worth setting set the record straight on what this does and doesn’t mean.

Most importantly, the report attributes small pollution reductions to the PTC largely because of some quirky and out-of-date assumptions that only led the report’s model to build a very small amount of additional wind under the PTC. If more realistic assumptions were used, more wind would have been built and the calculated pollution reductions would have been as large as the results found in other analyses.

Instead, the report relies on out-of-date 2011 assumptions from the U.S. Energy Information Administration (EIA), which include an extremely high capital cost for wind and low gas prices. So the model wrongly assumes that wind can’t compete even with the PTC, which largely explains why the report’s model only builds 15 gigawatts (GW) of wind between now and 2035.

In reality, largely because of declines in the cost of wind by over 30 percent in the last several years, the U.S. wind industry installed over 13 GW of wind last year alone. EIA reported significantly lower wind costs in its more recent report, and even those costs are well above the actual wind costs reported for projects being installed today.

The NRC model also misses the powerful combination of the PTC and state Renewable Portfolio Standards in quickly deploying clean energy in a time when emission reductions are critical.  In reality, the PTC has been an essential driver of wind installations, evidenced by the steep drop-offs that have occurred in years when the PTC was not extended.

Finally, the report omits the fact that the resulting wind projects more than repay the upfront tax relief (in local, state, and federal taxes over the life of those projects), so the tax credit essentially winds up returning those taxes in full.

The point of the Production Tax Credit is to deploy more wind energy. It does that well, spurring over 90 percent of all installed wind power in the U.S.

Wind projects avoid greenhouse gas emissions that would otherwise come from fossil fuel-fired electric generation. System operators use wind energy due to its low operating costs, and ramp down the output of the most expensive marginal power plants. The marginal power plants being ramped down are almost always the least efficient natural gas, coal- or oil-fired units because of their variable fuel costs. To produce the same amount of electricity that today’s U.S. wind turbine fleet (over 60,007 MW) will generate during 2013 would require burning over 90 million tons of coal (9,280 miles of railcars) or 329 million barrels of oil each year.

The NRC report also finds that the wind built by the PTC significantly reduces energy costs for consumers, a finding supported by other reports. For example, Synapse Energy Economics recently calculated that consumers in the Great Lakes and Mid-Atlantic states would save $6.9 billion annually by doubling their use of wind beyond existing standards.

Absent comprehensive, national climate policy, it is important to keep making progress with the policies we have. And here is the progress we’ve made to date with the PTC:
 

During 2013, operating U.S. wind projects will avoid nearly 98.9 million metric tons of carbon dioxide — the equivalent of reducing power sector emissions by 4.4 percent, or taking over 17.4 million cars off the road.

Reducing power sector emissions is important because the power sector is the biggest contributor to U.S. greenhouse gas emissions, at 38 percent.

Wind energy can do far more as it is expanded by 2030 to generate 20 percent of the electricity on U.S. power grid, and beyond. That scenario, deemed feasible by the U.S. Department of Energy under the George W. Bush Administration, would avoid 825 million tons of CO2 a year by 2030, cutting expected electric sector emissions by 20-25 percent. That is equivalent to taking 140 million vehicles off the road.

Further evidence for wind energy’s importance in avoiding greenhouse gas emissions and helping to combat climate change while saving money:

·      A study from Navigant Consulting found that a 4-year PTC would spur wind deployment, and achieve 490 million tons of annual CO2 reductions by 2016.

·      A study by the PJM power grid operator found that 15,000 MW of added wind capacity in the Mid-Atlantic region would avoid 35 million tons of CO2, while reducing costs to consumers.

·      A study by the Electric Reliability Council of Texas (ERCOT) found that 9,400 MW of added wind capacity on their system would avoid 17.6 million tons of CO2, while reducing costs to consumers.

·      Leading wind energy states in the U.S. have seen double-digit percentage declines in their electric sector CO2 emissions, as they have ramped up their use of wind energy.

·      European nations that obtain more than 10 percent of their electricity from wind energy have seen their amount of CO2 emitted per kilowatt-hour decline by between 25-50 percent over the last decade.

 

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