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Could Phasing Out The Production Tax Credit Actually Save It?

Jim Pierobon's picture
Owner Pierobon & Partners LLC

Former Chief Energy Writer and Correspondent for the Houston Chronicle; SVP for Ogilvy Public Relations Worldwide; External communications chief for the American Council On Renewable Energy...

  • Member since 2007
  • 206 items added with 101,730 views
  • Dec 14, 2012

By Bill Opalka, Guest Contributor

A proposal by the American Wind Energy Association (AWEA) to phase out of its key federal subsidy by year-end 2018 in return for its immediate extension could mark a new era in assessing the fiscal costs and the economic and environmental benefits of all energy subsidies.

American Wind Association President Denise A. Bode played a daring — some say desperate — card in proposing to phase out her industry’s prized Production Tax Credit in return for its immediate extension. CREDIT: AWEA

The proposal was made to extend the production tax credit (PTC) in a Dec. 12 letter by AWEA President Denise Bode (photo) sent to Congressional leadership, hoping to jump-start an effort that has been stymied for more than a year.

This is the first time AWEA has unilaterally endorsed a phase-out. Such an approach was featured here at The Energy Fix November 16.

The proposal, outlined in this analysis released by AWEA, was couched in the language of current debates swirling around the nation’s capital: fiscal cliffs, budget constraints, deficits and the national debt.

“The wind industry recognizes that our country is facing significant fiscal challenges and is supportive of all energy technology incentives being reviewed and even phased down when Congress considers tax reform,” the letter states.

AWEA’s analysis specifies the tax credit would start at 100% of the current 2.2 cents a kilowatt-hour for projects started in 2013. Here is how the phase-out would proceed:

  • 90% of that value for projects placed in service in 2014;
  • 80% in 2015;
  • 70% in 2016; and
  • 60% in both 2017 and 2018, ending December 31, 2018.

The model for the immediate extension was passed by a bi-partisan Senate Finance Committee in August. A key difference in that proposal is that projects would qualify for the PTC if construction was started in 2013, rather than previous requirements that projects be placed in service by Dec. 31.

In the run-up to Dec. 31, the wind industry has rushed to complete projects to qualify for the expiring credit and will set a record for capacity additions of from 10 to 12 gigawatts.

The wind industry has been hampered by the continuous stop-start nature of renewable energy tax policy, with previous PTC lapses in 1999, 2001 and 2003.

The idea of a phase-out was discussed recently by the credit’s creator, U.S. Sen. Chuck Grassley (R-Iowa) in a conference call by the governors wind coalition, which has stressed the job losses in the wind manufacturing supply chain that have been gaining steam since the summer.

The proposal is a break from previous positions held by the wind industry, in which AWEA would not entertain any discussion of a phase-out or reduction in the credit. In recent months, the idea of gradually eliminating the credit with an end date a few years hence started to gain currency.

That was presented as part of an overall review of energy tax credit for all fuel sources, including the permanent tax credits for fossil fuels that have been written into the tax code for nearly a century.

But perhaps it’s telling of what dire straits in which the wind industry finds itself. It is the first energy resource willing to voluntarily sunset its own subsidy in order to achieve a much-needed lifeline.

Just one of many questions raised by AWEA’s proposal is whether fiscal hawks and proponents of reducing or eliminating more energy subsidies — including those for fossil fuels — will take this ‘baton’ and run with it. Richard W. Caperton, Director of Clean Energy Investment at progressive Center for American Progress, challenges budget and tax negotiators to do just that here. 

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Nathan Wilson's picture
Nathan Wilson on Dec 17, 2012

According to the AWEA,

"With the policy certainty that accompanies a stable extension, the industry believes it can achieve the greater economies of scale and technology improvements that it needs to become cost-competitive without the PTC."

Maybe.  Or maybe they are hoping their industry will be eventually saved by an increase in the price of natural gas and/or a price on carbon emissions.  Either way, it's a good bet, with government money being as tight as it is now.

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