As members of Congress weigh the costs and benefits of extending the wind production tax credit (PTC) one more time, it is appropriate to ask the hard questions about subsidies for wind power producers in the United States. Who better to ask than the most visible person asking for an extension of the PTC on behalf of the U.S. wind industry? The questions below are directed to the CEO of the American Wind Energy Association (AWEA), Tom Kiernan.

1. At what point will the wind industry no longer need subsidies?

The PTC has been around since 1992. In the 22 years since, the wind industry and its supporters have justified subsidies to wind power—on a temporary basis—and argued that the industry is on the cusp of sustaining itself without subsidies. Denise Bode, the CEO of AWEA before Tom Kiernan, left at the end of 2012 to become an attorney in the private sector—a tax attorney. Before she left, her vision was for the wind industry to receive a phased-out PTC over the period from 2013 to 2018. In a December 2012 letter to Congress, Ms. Bode argued that the wind industry would be “minimally viable” after six more years of the PTC.

“Analytical results indicate that a PTC beginning with 2.2 cents per kilowatt-hour, or 100% of the current level for projects that begin construction in 2013, followed by 90%, 80%, 70%, 60%, and then 60% of the current level for projects that are placed in service in years 2014 through 2018, with no PTC in 2019 or afterwards, would sustain a minimally viable industry, able to continue achieving cost reductions.”

For another example of the on-the-cusp argument, the original author of the PTC, Senator Chuck Grassley, opined in 2003 that “we’re going to have to [subsidize wind] for at least another five years, maybe for 10 years. Sometime we’re going to reach that point where it’s competitive.”

Senator Grassley’s statement was 11 years after the PTC was enacted. Now, yet another 11 years later, the Senate is grappling over Grassley’s recent addition of a two-year extension of the PTC to a broader tax extenders package. The comments from Grassley and Bode conjure the image of a child wanting to stay in bed and asking for “a few more minutes” of sleep, reluctant to get up and face the day. Does the refrain from wind supporters of “a few more years” mean anything, or is the wind industry simply reluctant to get up and face market competition?

More troubling is the fact that AWEA stopped saying “a few more years” and now wants the PTC “for the foreseeable future,” whatever that means. In a recent interview with E&E TV, Tom Kiernan was asked why the industry still needs the PTC (and for how long). Mr. Kiernan’s response was, “We do need it for the foreseeable future, but the costs are coming down and soon we’ll be in a place where it’s not needed.”

When host Monica Trauzzi pressed him on the issue, Mr. Kiernan simply dodged the question by saying, “You know it’s hard to say at this point. I can’t project that out.” Keep in mind that the wind power industry was about a century old when the PTC was instituted. The American people have been hand-feeding the wind industry the same heavy subsidy for 22 years—it makes no sense to continue down this path without getting some clarity on when the wind industry will no longer ask the American taxpayer for this handout.

2. Does Mr. Kiernan agree with Warren Buffett that “[Wind turbines] don’t make sense without the tax credit”?

Responding to a question about tax rates in a recent interview, Warren Buffett opened up about the real reason he “invests” in wind turbines.

“I will do anything that is basically covered by the law to reduce Berkshire’s tax rate. For example, on wind energy, we get a tax credit if we build a lot of wind farms. That’s the only reason to build them. They don’t make sense without the tax credit.”

In the past, Mr. Kiernan and AWEA have cited Buffett’s investments in wind turbines as a signal that wind can compete with other sources of electricity generation such as natural gas and coal. The AWEA blog said this about the decision of the Berkshire-owned utility, MidAmerican Energy, to establish a wind subsidiary: “MidAmerican’s decision is a clear reminder that the fundamentals of wind power are very strong.” A Bloomberg article from December 2013 cited wind’s newfound competitiveness as the driver of Berkshire Hathaway’s $1 billion purchase of wind turbines for Iowa projects.

However, as Mr. Buffett explained, his investment strategy is to obtain tax credits, not to provide in-demand energy to competitive markets. And as the Wall Street Journal notes, “political favors for the wind industry induce a leading U.S. company to misallocate its scarce investment dollars for an uneconomic purpose.” Is wind energy really a sound investment, as AWEA says, or is wind just an easy way to grab tax credits?

3. Does Mr. Kiernan believe the PTC is good for Americans?

Mr. Kiernan and AWEA often tout the benefits of wind power to electricity consumers. Wind is cheap (the fuel is free!), they say, so more wind means cheaper electricity for everyone. If only that were true. The wind itself may be free, but it is expensive to capture the wind, turn it into electricity, and then transport that electricity to where people use it.

As AWEA well knows, the price that wind producers charge for their product is only competitive because of the subsidies and mandates that ultimately double-charge Americans for wind power. Still, AWEA characterizes the PTC as saving American consumers money:

“U.S. electric utilities are locking in fixed-price contracts for wind power, now more cost-competitive than ever, illustrating the success of a key federal tax policy in holding down rates for consumers.”

Given AWEA’s cries for continued subsidies, what is really going on here?

As IER recently highlighted, the answer is simple: with enough subsidies, wind producers can still make money even if they sell their power well below cost (or worse, for negative prices). To imply that the PTC saves money is laughable because it completely neglects the tax burden it shifts onto the very people AWEA says it helps. This price-suppression effect is nothing more than returning to consumers a small portion of their paycheck that was needlessly taxed away in the first place.

As discussed above, the PTC provides a tax break for wealthy owners of wind turbines (the Warren Buffetts of the world) at the expense of everyone else. Rather than holding down prices for consumers, in reality the PTC is holding down tax rates for politically savvy investors like Warren Buffett.

4. Who benefits from an extension of the PTC?

First, AWEA would have us believe that the PTC takes American tax dollars and, in return, provides a great return on the American people’s “investment.” But as IER highlighted in December, wind producers in a minority of U.S. states are reaping the lion’s share of direct federal support for wind power. Last month, the Energy Information Administration pointed out that 80 percent of the wind power in the U.S. was produced in just 12 states. Tax credits to the wind industry disproportionately benefit wind producers located in a minority of U.S. states.

Second, who are these wind producers? The wind subsidy windfall is going not just to a small number of U.S. states, but also to a large number of foreign-owned companies. Foreign investment in the United States is great. However, when foreign manufacturers look to U.S. taxpayers as a new source of subsidies (as subsidies dry up in Europe and elsewhere), the American people deserve to know about it. The Congressional Research Service explained AWEA’s international appeal:

“Aside from GE Energy and Clipper Windpower, most of the manufacturers that sell, assemble, or manufacture turbines and wind-related components in the U.S. market are headquartered outside the United States. Vestas, Gamesa, and Siemens are among the European manufacturers that have responded to government regulations that mandate the use of renewables, including wind power. Other firms manufacturing wind turbines for the U.S. wind market include Japanese and Indian companies such as Mitsubishi and Suzlon. Manufacturers from South Korea and China are also expanding production capacity and entering the U.S. market.”

How much of the PTC goes to companies headquartered outside the United States? The American taxpayer should know, and AWEA should be more transparent about this issue when it refers to the wind industry as “homegrown.”

5. What is the real environmental impact of the PTC?

AWEA and Mr. Kiernan advertise wind power as “a leading solution to pollution and climate change.” An AWEA report released in March argues, “the real impact of wind energy on electricity markets is that it displaces more expensive, polluting sources of energy…” Take note of two key omissions in that argument.

First, AWEA fails to address environmental impacts other than air pollution, which include bird and bat deaths, increased land use, and problems associated with the rare earths used in wind turbines. These are real environmental concerns that AWEA routinely leaves out of the discussion. Consequently, policymakers should not rely strictly on AWEA’s statements if they want to make informed policy decisions.

Second, wind displaces a lot of nuclear power—a source of electricity that is not exactly “expensive” and certainly not “polluting.” AWEA’s March report was crafted specifically as a response to arguments about how wind subsidies hurt the U.S. nuclear fleet. Yet, throughout the report, AWEA refers to wind replacing only the most expensive, most polluting sources of energy. AWEA is hopelessly divorced from reality when it pretends that wind power replaces natural gas and coal rather than nuclear power. Meanwhile, energy analysts across the board recognize the simple fact that wind is most directly at odds with nuclear power, which is the single largest source of electricity generated in the U.S. with no CO2 emissions. On this point, AWEA’s arguments do not square with the mainstream and ignore important issues raised by non-partisan groups, the Congressional Research Service, and the New York Times, among others.

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