Wind PTC: There’s No Free Lunch

by Nicolas Loris www.Heritage.org 

Real men wear pink. Real women wear fur. And real market-based policy doesn’t include special interest subsidies.

Sadly, lots of legislation fails the real free market test. So it is with one of Washington’s favorite energy sources du jour: energy production tax credits (PTC). Sadly, anti-market policies like the expansion of the wind energy production tax credit continue to get support in Congress.

The Obama Administration is rightly criticized for the stunning waste of taxpayer dollars under programs that spawned the likes of Solyndra. But wasting taxpayer dollars on different but similar programs—claiming that these subsidies really are necessary to create jobs or prevent layoffs—simply creates a “subsidies for me but not for thee” mentality in Washington.

The double standard needs to stop, and so do the subsidies for all energy sources. Policymakers either choose to ignore the fact that there’s no free lunch entirely, or they choose to ignore it when the handout benefits his or her district or state. But here’s the simple reality: Taxpayer-funded programs do not create jobs; they shift them from one sector of the economy to another. The opportunity cost of government spending is the lost labor and capital extracted from other sectors of the economy to artificially support the politically preferred ones.

And wind energy production tax credits certainly fall into that category. Earlier this year, the governors of Kansas and Iowa—two states that stand to benefit from the extension of the wind PTC—sent a letter to the House and Senate stressing that “the leading wind project developers and manufactures are canceling their plans for 2013 and wind development will grind to a halt due to the uncertainty of a PTC extension.… A recent report completed by Navigant finds that an expiration of the PTC would lead to a nearly fifty percent decrease in the number of wind energy jobs.”

If Navigant’s numbers are accurate, it means two things: First, the subsidy has been artificially propping up jobs in the industry and has shifted labor and capital away from other, more productive sectors of the economy. Secondly, wind can compete without subsidies, since the entire industry isn’t going to disappear.

Renewable energy production tax credits have received support from Democrats, Republicans, and industry groups, but that doesn’t make it good policy. The PTC creates a system where an industry’s success depends more on its connections in Washington than on its ability to provide a product that adds value in one way or another.

Profits and losses are good for determining whether a product adds value. Some energy consumers may be willing to pay a premium to purchase wind energy, but they—not taxpayers—should pay that premium.

The only way to break up such an inefficient and inherently unfair system of picking winners and losers is to remove the government’s intervention into the economy. Removing the targeted tax credits for all energy sources and broadly lowering the tax rate, as legislation by Representative Mike Pompeo (R–KS) and Senator Jim DeMint (R–SC) does, would create a more market-based energy economy that benefits economically viable producers and, ultimately, consumers by producing energy reliably and affordably.

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