In a speech delivered at the Heritage Foundation, in anticipation of a vote by Congress, Alexander calls for end to “wasteful, long-term special tax breaks such as those for ‘Big Oil’ and ‘Big Wind’”
Posted on March 7, 2012
“There are three reasons why ‘Big Wind’ subsidies should go the way of the $5 billion annual ethanol subsidy, which Congress allowed to expire last year: First, we can’t afford it…. Second, wind turbines produce a relatively puny amount of expensive, unreliable electricity…. Finally, these massive turbines too often destroy the environment in the name of saving the environment.” – Lamar Alexander
WASHINGTON – In a speech delivered today at the Heritage Foundation, U.S. Senator Lamar Alexander (R-Tenn.) called on Congress to end the production tax credit for wind power, which has been in place since 1992 and is set to expire at the end of the year – an issue on which could Congress could vote as early as this week, by way of an amendment to the Highway bill. Alexander said, “The ‘Big Wind’ gravy train…should go the way of the $5 billion annual ethanol subsidy, which Congress allowed to expire last year.”
Alexander listed three reasons the subsidies should be allowed to expire:
“First, we can’t afford it. The federal government borrows 40 cents of every dollar it spends. It cannot justify such a subsidy, especially for what the U.S. Energy Secretary calls ‘a mature technology.’
“Second, wind turbines produce a relatively puny amount of expensive, unreliable electricity. Wind produces 2.3% of our electricity, less than 8 percent of our pollution-free electricity. …
“Finally, these massive turbines too often destroy the environment in the name of saving the environment… These are not your grandma’s windmills. They are taller than the Statue of Liberty, their blades are as long as a football field, and their blinking lights can be seen for twenty miles. … Apparently eagle killing has gotten so commonplace that the U.S. Department of Interior will grant wind developers hunting licenses for eagles. In Goodhue County, Minnesota, a company wants to build 48 turbines on 50 square miles of land and, to do that, it has applied for an ‘eagle take’ permit which will allow it to kill a certain number of eagles before facing penalties.
Alexander’s prepared remarks are below:
Why Congress Should Stop the “Big Wind” Gravy Train
Congress should stop the “Big Wind” gravy train. Subsidies for developers of huge wind turbines will cost taxpayers $14 billion over five years, between 2009 and 2013, according to the Joint Tax Committee and the Treasury Department. This is more than the special tax breaks for “Big Oil,” which Congress should also end.
$6 billion of these “Big Wind” subsidies will come from the Production Tax Credit for renewable energy, which Congress “temporarily” enacted in 1992. The prospect of its expiration at the end of this year has filled the Capitol with lobbyists hired by investors wealthy enough to profit from the tax breaks. President Obama wants to make the credits permanent. According to the Wall Street Journal, this is a “make or break moment” for wind power companies.
There are three reasons why “Big Wind” subsidies should go the way of the $5 billion annual ethanol subsidy, which Congress allowed to expire last year.
First, we can’t afford it. The federal government borrows 40 cents of every dollar it spends. It cannot justify such a subsidy, especially for what the U.S. Energy Secretary calls “a mature technology.”
Second, wind turbines produce a relatively puny amount of expensive, unreliable electricity. Wind produces 2.3% of our electricity, less than 8 percent of our pollution-free electricity. One alternative is natural gas: abundant, cheap, and very clean. Another alternative is nuclear. Reactors power our Navy and produce 70 percent of our pollution-free electricity. Using windmills to power a country that uses one fourth of the world’s electricity would be the energy equivalent of going to war in sailboats.
Finally, these massive turbines too often destroy the environment in the name of saving the environment. When wind advocate T. Boone Pickens was asked whether he would put turbines on his Texas ranch, he answered no and said, “They’re ugly.” A new documentary, “Windfall,” chronicles upstate New York residents debating whether to build giant turbines in their town. A New York Times review of the film reported this:
“Turbines are huge: some are 40 stories tall, with 130-foot blades weighing seven tons and spinning at 150 miles an hour. They can fall over or send parts flying; struck by lightning, say, they can catch fire. Their 24/7 rotation emits nerve-racking low frequencies (like a pulsing disco) amplified by rain and moisture, and can generate a disorienting strobe effect in sunlight. Giant flickering shadows can tarnish a sunset’s glow on a landscape.”
Let’s consider these three arguments, one by one.
First, the money.
For all we hear about “Big Oil,” you may be surprised to learn that special tax breaks for “Big Wind” are greater. During the five years from 2009 to 2013, federal subsidies for “Big Wind” equal $14 billion. Here I am only counting the Production Tax Credit and the cash grants that the 2009 stimulus law offered to wind developers in lieu of the tax credit.
An analysis of that stimulus cash-grant program by Greenwire found that 64 percent of the 50 highest-dollar grants awarded—or about $2.7 billion—went to projects that had begun construction before the stimulus measures started. Steve Ellis, the vice president of Taxpayers for Common Sense, told Greenwire: “It’s essentially funding economic activity that already would have occurred. So it’s just a pure subsidy.”
According to the president’s new budget, “Big Oil” receives multiple tax subsidies. Doing away with them would save about $4.7 billion in fiscal year 2013 or about $22 billion over five years, it says. So far it sounds like “Big Oil,” with $22 billion, is bigger in subsidies than “Big Wind” with $14 billion.
But here’s the catch: Many of these subsidies that the president is attacking oil companies for receiving are regular tax provisions that are the same or similar to those other industries receive. For example, Xerox, Microsoft, and Caterpillar all benefit from tax provisions like the manufacturing tax credit, amortization, or depreciation of used equipment that the president is counting as “Big Oil” subsidies.
And, of course, wind energy companies also benefit from many similar tax provisions. But the production tax credit that benefits wind is in addition to regular tax code provisions that benefit many companies. So the only way to make a fair comparison is to look only at subsidies that mostly benefit only oil or wind, and by that measure, wind gets more breaks than oil.
The Heritage Foundation has done an analysis showing that if Big Oil received the same type of production tax credit as Big Wind, then the taxpayer would be paying Big Oil about $50 per barrel of oil, when adjusted for today’s oil prices.
And, according to a 2008 Energy Information Administration report, Big Wind received an $18.82 federal subsidy per megawatt hour, 25 times as much per megawatt hour as subsidies for all other forms of electricity production combined.
The Production Tax Credit first became law in 1992. Its goal was to jumpstart renewable energy production. While it is advertised as a tax credit for renewable energy, 75 percent of the credit goes to wind developers, according to the Joint Committee on Taxation.
Here is how it works. For every kilowatt hour of electricity produced from wind, turbine owners receive 2.2 cents in a tax credit. For example, if a Texas utility buys electricity from a wind developer at 6 cents per kilowatt hour, the federal taxpayer will pay the developer another 2.2 cents per kilowatt hour. This 2.2 cents subsidy continues for the first ten years that the turbine is in service. And this 2.2 cents credit is worth 3.4 cents in cash savings on the tax return of a wealthy investor.
Wind developers often sell their tax credits to Wall Street banks or big corporations or other investors who have large incomes. They create what is called a “tax equity” deal in order to lower or eliminate taxes. This is the scheme that our president, who is championing “economic fairness,” would like to make permanent.
Energy expert Daniel Yergin says that the price of oil during 2011, when adjusted for inflation, is higher than at any time since 1860. It therefore makes no sense to give special tax breaks to “Big Oil.” Neither does it make sense to extend special tax breaks to “Big Wind,” a mature technology. For every $3 saved by eliminating these wasteful subsidies, I would spend $2 to reduce the federal debt and $1 to double research for new forms of cheap, clean energy for our country.
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The second problem with electricity produced from wind is that there is not much of it, and since the wind blows when it wants to, and, for the most part, can’t be stored, it is not reliable.
For this reason, sometimes the claims in newspapers about how much electricity wind turbines produce are misleading because of the difference between the capacity of an energy plant and its actual production. Daniel Yergin says that U.S. installed capacity for windpower grew at an average annual rate of 40 percent between 2005 and 2009. In terms of absolute capacity, Yergin writes in his book The Quest, that growth in capacity was equivalent to adding 25 new nuclear reactors. But, Yergin writes, in terms of actual generation of electricity—it was more like adding nine reactors. This is because nuclear plants operate 90 percent of the time while wind turbines operate about one third of the time.
As an example, the Tennessee Valley Authority constructed a 29-megawatt wind farm at Buffalo Mountain at a cost of $60 million. It is the only wind farm in the Southeast. Now you’ll read in the papers about a 29-megawatt wind farm, but that’s not its real output. In practice, Buffalo Mountain has only generated electricity 19 percent of the time, since the wind doesn’t blow very much in the Southeast. So this wind farm, sounding like a 29 megawatt power plant, only generates six megawatts. TVA considers Buffalo Mountain to be a failed experiment. In fact, looking for wind power in the Southeast is a little like looking for hydropower in the desert. So, one problem with the wind subsidy is that it has encouraged developers to build wind projects in places where the wind doesn’t blow.
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Finally, there is question of whether in the name of saving the environment, wind turbines are destroying the environment. These are not your grandma’s windmills. They are taller than the Statue of Liberty, their blades are as long as a football field, and their blinking lights can be seen for twenty miles. Not everyone agrees with T. Boone Pickens that they are ugly but, when these towers move from the television advertisements into your neighborhood, you might agree with Mr. Pickens.
“Energy sprawl” is the term conservation groups use to describe the march of 45-story wind turbines onto the landscape of “America, the Beautiful.” If the United States generated 20 percent of our electricity from wind, as some have suggested, that would cover an area the size of West Virginia with 186,000 wind turbines. It would also be necessary to build 12,000 miles of transmission lines. The late Senator Ted Kennedy and his successor Senator Scott Brown have complained about how a wind farm the size of Manhattan Island will clutter the ocean landscape around Nantucket Island.
Robert Bryce told the Wall Street Journal that the noise of turbines, this “‘infrasound’ issue, is the most problematic for the wind industry. ‘They want to dismiss it out of hand, but the low frequency noise is very disturbing,’ he explains. ‘I interviewed people all over, and they all complained with identical words and descriptions about the problems they were feeling from the noise.’”
Theodore Roosevelt was our greatest conservationist president, and his greatest passion was for birds. Birds must think that wind turbines are Cuisinarts in the sky.
Last month, two golden eagles were found dead at California’s Pine Tree wind farm, bringing the total count of dead golden eagles at that wind farm to eight carcasses. And the Los Angeles Times reports that the U.S. Fish and Wildlife Service “has determined that the six golden eagles found dead earlier at the 2-year-old wind farm in Kern County were struck by blades from some of the 90 turbines spread across 8,000 acres at the site.” That puts the death rate per turbine at the Pine Tree wind farm three times higher than at California's Altamont Pass Wind Resource Area, which has 5,000 turbines that kill 67 golden eagles each year.
Apparently eagle killing has gotten so commonplace that the U.S. Department of Interior will grant wind developers hunting licenses for eagles. In Goodhue County, Minnesota, a company wants to build 48 turbines on 50 square miles of land and, to do that, it has applied for an “eagle take” permit which will allow it to kill a certain number of eagles before facing penalties.
I have not figured out how such a hunting license squares with federal laws that will put you in prison or fine you if you kill migratory birds or eagles. Nor have I figured out how it squares with the Fish and Wildlife Service fining Exxon $600,000 in 2009 when oil development harmed protected birds. Do not the same laws protecting birds apply both to “Big Wind” and “Big Oil”?
Surely there are appropriate places for wind power in a country that needs clean electricity and that has learned the value of a diverse of set of energy sources. But if reliable, cheap and clean electricity without energy sprawl is the goal, then four nuclear reactors—each occupying one square mile—would equal the production of a row of 50-story wind turbines strung the entire length of the 2,178-mile Appalachian Trail from Georgia to Maine. And according to Benjamin Zycher at the American Enterprise Institute, a 1,000-megawatt natural gas power plant would take up 15 acres while a comparable wind farm would take up 48,000 to 60,000 acres. And, of course, even if you built all those turbines, you would still need the nuclear or gas plants for when the wind doesn’t blow.
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Our energy policy should be, first, to double the $5 billion federal energy budget for research on new forms of clean, cheap, reliable energy. I am talking about the 500-mile battery for electric cars; commercial uses of carbon captured from coal plants; solar power installed at less than $1 per watt; or offshore wind turbines.
Second, we should strictly limit a handful of jumpstart research and development projects to take new technologies from the R&D phase to the commercial phase. I am thinking here of projects like ARPA-E, modeled after the Defense Department’s DARPA that led to the Internet, stealth and other remarkable technologies. Or the five-year program for small modular nuclear reactors. Third, we should end wasteful, long-term special tax breaks such as those for “Big Oil” and “Big Wind.” The savings from ending those subsides should be used to double clean energy research and to reduce our federal debt.
For a strong country, we need large amounts of cheap, reliable clean energy and we need a balanced budget. This is an energy policy that can help us do both.
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