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February 12, 2003
Paul Gipe

Why I Oppose the Production Tax Credit


 

Background

Since the first National Energy Act, tax credits have been the mechanism used in the United States to subsidize or stimulate wind energy. Through 1985 the tax credits were based on installed capital costs. Beginning in the 1990s, the tax credits were based on the sales of wind-generated electricity. This eliminated some of the more egregious abuses of the earlier program. Up to the present, Production Tax Credits have been the favored policy of both the U.S. wind industry and renewable energy advocates. This mechanism is only used in the United States.

Rationale of Opposition

1. Most simply, there are better ways to promote responsible wind energy development. Electricity Feed Laws are a far superior mechanism for spurring renewable energy development. The success of Feed Laws can be seen in Germany, Spain, and now France.

2. Production Tax Credits can only be used by those who sell bulk electricity. They cannot be used by renewables in distributed applications on the customer side of meter. For example, a pig farmer who wishes to off load consumption on the farm cannot use the tax credits because there are no sales of wind-generated electricity.

3. Production Tax Credits are of benefit only to those with a tax burden sufficient to use all of the credits. Those most likely to benefit are non-regulated utility subsidiaries.

4. Production Tax Credits lead to an unfortunate American phenomenon of a boom and bust or "gold rush" form of development. This results in part because Congress reauthorizes the tax credits for only a few years at a time. Thus development is concentrated at the end of the last year. Boom and bust development is no way to run a business and is certainly no way to create a dynamic and healthy renewable energy industry. Companies expand then contract, hiring and then firing in an oft-repeated cycle. When developers have been bitten by the gold fever, impacts on the environment and on nearby communities take a back seat to getting projects "in the ground".

5. Production Tax Credits lead to concentration of the technology in the hands of a few. One-half of all wind capacity in the USA is owned or operated by Florida Power & Light's unregulated subsidiary. The trend in the U.S. industry is toward monopolistic power and control of the political process. This concentration of power is not seen in markets where Electricity Feed Laws are used.

6. Production Tax Credits, by their boom and bust nature in the United States, cannot sustain a healthy manufacturing sector. There is only one U.S. manufacturer of commercial wind turbines, GE Wind's Tehachapi plant. However, much of GE Wind's revenue comes from their German operations with sales to Germany's Feed Law market. (GE Wind has demanded that the bankruptcy court refund much of its payment for Enron Wind's assets because GE Wind concluded they overpaid.)

7. Production Tax Credits encourage obscure and non-transparent forms of ownership structures. Part of the ongoing criminal investigation of Enron partnerships involves wind deals designed to maximize use of the Production Tax Credits. It's nearly impossible to follow the money in these transactions. Of course, that was the intent. For the environmental community, this complexity leads to an absence of accountability. Who is responsible to clean up environmental damage from improperly developed wind projects? The operator? The owner? If so, who is the owner?

It's time to jump off the Production Tax Credit treadmill and work toward a more open, transparent support mechanism such as the Electricity Feed Law.


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