Speeches & Floor Statements

Floor speech: "Wasteful Wind Subsidies"

Posted on April 2, 2014

           The Finance Committee is considering something we call in the Senate tax extenders.  One of those is the wind production tax credit.  For the next 10 minutes or so, I wish to address that law which has been on the books for more than 20 years.  It expired in December, and, in my view, needs to stay expired. 

            One of the things we remember most about the late President Ronald Reagan, is what he said about government programs: The closest you will come to eternal life on this Earth is a government program.       

            Well, my nomination for the most glaring example of a government program that seems to have eternal life is the wind production tax credit -- the federal taxpayers' subsidy for what I would call "big wind."  

            Here is what the wind production tax credit does.  Let's say you build one of those 20-story turbines and the wind turbines begin to go around, as they will about one-third of the time to produce electricity.  So for every kilowatt hour of electricity that you produce, the taxpayers will pay you 2.3 cents.  That is a pretty good deal because the wholesale price of electricity, depending on where you are at in the country, might range from about 3 cents per kilowatt hour to 7 cents per kilowatt hour.  So let's say you are in Oregon or a part of the country where they have pretty cheap electricity and you sell wind for 3 cents a kilowatt hour.  You will pay 1 cent of the money you get in federal corporate tax.  That leaves you with 2 cents, but then the taxpayer is going to come in and pay you 2.3 cents on top of that.  Because it is a tax credit, it is worth even more. 

            Now it is even better than that.  That subsidy is not just for 1 year, but it is for 10 years.  So every time we have a 1-year extension of the wind production tax credit, we tell the owner of the wind turbine -- and usually they take these ownerships and they put them in portfolios and they split them up and sell them to rich people around the country and around the world who can use the tax credits -- it is for 10 years. 

            So the wind production tax credit is 2.3 cents per kilowatt hour of taxpayer money, every year for 10 years if you are producing wind electricity. 

            This provision of the tax code was enacted in 1992.  It was supposed to be a “temporary” subsidy.  It was intended to do what we have done several times in our country, which is to jump-start a new energy technology.  Well, as President Reagan observed, eternal life for a government program sinks in pretty quickly.  This temporary tax provision, enacted in 1992 -- more than 20 years ago -- has been extended eight times since its enactment.  The wind industry has become a very well-developed industry. 

            I asked President Obama's Nobel Prize-winning Energy Secretary, Secretary Chu, in the first term of President Obama's administration how he would describe wind power.  He said it was a “mature” technology. 

            The No. 1 problem with the wind production tax credit is its cost.  Congress enacted a 1-year extension for 2013.  That was at a cost of nearly $12 billion to the taxpayers -- remember, not all in 2013; that was just for a 1-year extension.  For 2014 there is another 1-year extension which is being considered by the Finance Committee, and that will be another $6 billion. 

            This is real money.  I mean, just look at the amount of money we spend on energy research in multiple agencies.  The number is about $10 billion—let’s say we, through our research, developed a way to capture carbon from coal plants and recycle that carbon and turn it into something commercially feasible and sell it.  Then all of a sudden, these coal plants that people worry about because they produce carbon, would be as clean as nuclear power, as clean as wind power. As a result we would be building coal plants everywhere in America.  That seems like a better use of taxpayer dollars.  We would have cheap electricity-- even cheaper electricity for a longer period of time. 

            We spend $10 billion on energy research in a year and the last 1-year extension of the wind production tax credit was $12 billion over 10 years.  By comparison, take tax breaks for Big Oil.  One of the last times President Obama wanted to end the “tax subsidies” for what he called “Big Oil”, he identified $4 billion worth of “tax subsidies.”  Well, most of those tax breaks, he calls subsidies for “Big Oil,” are tax breaks that many manufacturing companies have. 

            The point I am trying to make is that we are talking about a lot of money. 

            The supporters of this tax credit will say:  "Let's phase it out.”  In fact, it is phased out.  If Congress did not act, all of those people who currently today have their wind turbines would continue to get their subsidies for up to 10 more years.  So that phases it out.  

            But let's say we phase it out according to a proposal that was made last year by the wind industry.  Well, the American Energy Alliance said that might cost as much as $50 billion over 10 years -- a huge amount of money.  Now, there could be some other form of phase out -- I would welcome the opportunity to see it -- that would not cost so much.  Maybe that would make sense, but beware the phase out. 

            The United States uses 20 to 25 percent of all of the electricity in the world.  It is important to us.  We use it for our computers, we use it for our businesses, we use it for our military, and we use it for our lights.  If the lights go out in America, America stops.  That is how important electricity is to us. 

            Where does that electricity come from?  Four percent of it comes from wind power.  Of course, that is only available when the wind blows -- usually at night, usually when we need it the least.  Four percent of our electricity is wind after 22 years and billions of dollars.  The rest of it comes from other sources--  7 percent from hydroelectric power; 19 percent from nuclear power, which is about 60 percent of all of our clean energy; nearly 40 percent from coal; and 27 percent from natural gas.  So 4 percent from wind. 

            It is true, as wind power advocates say, that in the past Congress has approved other jump-starts for energy technology.  But the difference is that we put a cap on them. 

            We are very happy about all of the unconventional gas we have in this country today.  Suddenly, we have an enormous amount of natural gas.  The research for that partially came from Sandia Laboratory, from Department of Energy demonstration projects.  There was a tax credit for fracking, but it expired in 1992.  The demonstration projects are over.  This technology is out in the marketplace and making lives better all across the country.  Take plug-in electric cars.  I supported that, but there was a cap on the number of credits we had for plug-in electric cars -- 200,000 per manufacturer.  The nuclear production tax credit works just like the wind production tax credit. You sell a kilowatt hour of electricity from a nuclear power plant, and we will give you a taxpayer credit.  But that is capped at 6,000 megawatts.  So there is a limit to it.  There is no cap on the subsidy for electricity produced by wind.  I do not know the exact number, but it is probably in the 50- or 60- or 70,000 megawatt range. 

            Problem No. 1 is cost. 

            Problem No. 2 is reliability risk. 

            The problem here is that Congress is picking winners and losers. When it gives wind power such a big subsidy that is sometimes more than the cost of the electricity, it undercuts our coal and nuclear plants.  And what that does is put us at risk as a country.  Any country that uses that much electricity needs these big plants to operate almost all the time -- coal and nuclear -- to keep the lights on, to support jobs, to keep the cars running, and to make America run.  Our country cannot run on windmills that only work when the wind blows.  We cannot run only on solar power that only works when the sun shines.  We have to have baseload power. 

            Because the wind subsidy is picking winners and losers, it undercuts baseload power. It has caused the Center for Strategic and International Studies, a very well-respected organization, to say that the combination of the federal subsidy for wind power and low gas prices could cause as many as 25 percent of our nuclear plants in America to close within the next 10 years.

            That would be a terrible blow to our country's economy, to our effort to improve family incomes and to find jobs for middle-class Americans. 

            How could that be?  How does it do that?  Well, let's take this example.  Let's say you are in Chicago and it is the middle of the night, 3 a.m., and the demand for electricity goes down as people go to sleep.  Well, the supplier of electricity to your home or your business in Chicago is buying electricity from the market at the lowest possible cost.  Well, as the demand goes down, the price goes down, and who is left out there selling electricity?  It is the wind power people because they can give away their electricity and still make a profit because of the subsidy.  This negative pricing is what is undermining baseload, coal and nuclear. 

            We are very proud of the fact that in our country we have, in effect, a domestic price for natural gas.  It is very low.  Chemical companies are moving back to America instead of leaving.  Manufacturing plants are enjoying the lower costs, and so are homeowners as they heat and cool their homes.  But remember that natural gas prices can go up and they can go down.  In 2005 they were not $3 and $4 as they are today, they were $13.  In New England, even today sometimes natural gas prices spike to $30 a unit.  So it is important to have diversity and it is important to have baseload power.

            The third problem is that these large wind turbines destroy the environment in the name of saving the environment.  Some people might like to look at them.  I really do not.  Particularly in my part of the country, the only places they work are along the foothills or along the tops of the most beautiful mountains in the Eastern United States.  So you string these 20-story structures with blinking lights that can be seen for 20 miles in the middle of the beautiful view you have in the Eastern United States.  They take up a lot of space. 

            You could run these 20-story windmills from Georgia to Maine to produce electricity, scarring the entire eastern landscape. Or you could produce the same amount of electricity with eight nuclear power plants.  And you would still need the nuclear power plants to produce electricity when the wind is not blowing, which is most of the time. 

            The final problem is energy security.  I had a meeting with George Shultz, the former Secretary of State, the other day in San Francisco.  He made an observation that I had not heard him make before.  George Shultz said, "We should pay a lot of attention to generating more energy where we use it because of national security risks." 

            George Shultz is head of the MIT Energy Initiative.  He was observing that the supply of energy ought to be near the user of energy.  That is especially true with military bases.  It could be true for the rest of us in this age of terrorism.  That is another reason it makes less sense to subsidize these giant turbines say in the Great Plains, and then someone has to pay for 700 miles of transmission lines through backyards and nature preserves to get the wind power to Memphis—to bring that electricity to Tennessee and the Tennessee Valley.

            Expecting the United States to operate on windmills is the energy equivalent of going to war in sailboats while nuclear power is available.  It is even worse than that.  It is the same as destroying our nuclear ships -- our nuclear plants, the same way -- and replacing them with sailboats. 

            The energy subsidy for wind turbines has served a purpose for the last 22 years.  We have spent enough money on them.  We have distorted the market as much as we can stand.  Because of the cost and because we are undermining the baseload power of coal and nuclear, which puts us at risk as a country that uses 20 to 25 percent of the electricity in the world, my hope would be that the Finance Committee would save some money and let the marketplace flourish. Give us the opportunity to allow the wind production tax credit to stay right where it is, expired, as it did at the end of last year.  Let those persons who already have the benefit of the credits enjoy them for the rest of the period of time. 

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