Extend Renewable Energy Tax Credits

A big pet peeve of mine is the way we have gone about handling tax credits for renewable electricity. I believe renewable alternatives warrant tax credits, because we simply do not pay the “true cost” of our fossil fuel usage. For instance, regardless of your position on global warming, we certainly dump carbon dioxide into the atmosphere by burning fossil fuels. There is a cost – or if you don’t believe in global warming, you at least have to admit that there is a potential cost – from doing so that is not reflected in the $3.50 a gallon that we pay for gasoline. There are all sorts of additional costs. One that is of great concern to me is extending our dependence on non-renewable resources. That imposes a cost to future generations.

For these reasons, I favor giving renewable energy sources some help. While I would prefer that we do this by raising fossil fuel taxes and letting the alternatives compete on equal footing, that isn’t going to happen because politicians consider such taxes political suicide. So what we have instead are various tax credits and subsidies to give alternatives a helping hand. Some of these, like subsidies for corn ethanol, I oppose because they also have significant costs that aren’t being factored in. But the tax credits for renewable electricity have been a good investment, in my opinion. They have helped boost investments in wind and solar power.

However, the impact of these tax credits has been limited because they have only been renewed for one or two years at a time. If you are evaluating the economics of a new solar plant – and the tax credit may disappear in two years – you are going to be very cautious about deploying your capital.

CNN Money provides some background on the situation:

Renewable energy’s biggest wish

NEW YORK (CNNMoney.com) — While politicians off all stripes are vying to be seen as saviors in the energy crisis, Congress isn’t giving renewable energy investors the one thing they say would help the most – long-term tax credits. Lawmakers from both sides of the aisle want the nation to move away from fossil fuels and become more energy independent.

The tax credits are substantial. They currently give wind, geothermal and biofuels projects 2 cents for every kilowatt hour produced. The current market price for electricity is about 5 cents per kilowatt hour, so it works out to a subsidy of about 40%, according to the Energy Information Administration.

For solar, businesses and individuals can get 30% of the cost of a solar plant or home installation refunded by the government.

These tax credits have been around in some form since the early 1990s, but since the late 1990 have only been renewed on a yearly basis. That’s a problem for anyone trying to develop large sources of renewable energy.

This is just another example, in my opinion, of the government being very short-sighted over energy policy. If the tax credits were extended for 10 years, it would be a huge shot in the arm for the renewable energy industry. Pay for those tax credits with a nickel a gallon gas tax, and it will be a win-win for energy policy.

28 thoughts on “Extend Renewable Energy Tax Credits”

  1. We live in a world that is testament to the inability of politicians to recognize the unintended consequences of their actions — no matter how well intentioned. All the sweetheart deals for supposedly "renewable" electrical power sources are a great example.

    What we need are technological breakthroughs so that alternatives to fossil fuels do not need subsidies — indeed, so that fossil alternatives can start to take over some of the massive tax burden carried by fossil fuels.

    Subsidizing technological dead-ends will not get us to large-scale non-fossil power supplies. Getting rid of regulatory burdens might help. So might X-prizes. So might expanding & diversifying fundamental research. Those are proper roles for government.

  2. I like X-prizes too.
    Like Kinu, I am leery of subsidies — including the huge subsidies we pour out for our roadway system. They take your property, sales and income taxes and build roads with it. Gasoline taxes cover about 20 percent.
    The worst, most-subsidized roads are those to rural areas. Indeed, without subsidies of various kinds, our rural areas would empty out. Rural electricification, roads, medical services, farm supports — huge subsidies all.
    Make roads self-financing through gasoline taxes, and watch our oil imports dwindle rapidly.
    A $3 gallon additional federal tax on gasoline, to be used to maintain our roads, would be a strong, conservative step to setting this country right.
    Now, go out and find some real conservatives to support that. Good luck.

  3. X-Prize style approaches however don’t really do much to benefit economies of scale markets.

    Such as battery manufacturing.

    And the real problem with deployment has nothing to do with the basic science or engineering.


    Consider for instance, conventional cars lose profit on average on the first 60,000 models produced.

  4. is it strange that the approved periods for the credits are as brief or coincident with congressional election cycles?

    something about “squeezing anatomy parts” to achieve an objective.

    is this a “strange” action by POLS?


  5. Now the real question I have to ask. If Coal and Nuclear are both getting Production Tax Credits. (And much much more ontop of that)

    Shouldn’t Solar/Wind/Geothermal get similar Production Tax Credits?

    Unless of course you plan on removing subsidies for Coal and Nuclear. (Which is basically impossible)


    Oh, I linked this wrong.



    Which is largely represented by the “Alternative Fuels Production Credit”, which incidentally goes almost exclusively to Coal electricity.

  6. is it strange that the approved periods for the credits are as brief or coincident with congressional election cycles?

    It’s a politcal football. A simple bill to extend the credits would pass easily. But politicians hold the credits hostage. In the most recent cycle the Dems loaded the bill with repugnant earmarks and other provisions which had nothing to do with renewable energy. This puts Repubs in a lose-lose situation, either vote for an awful bill or suffer the consequences in the next election.

  7. Robert,

    I think the lesson from biofuels (and whole bunch of other government policies) is that government subsidies and incentives have a very real potential to cause significant negative results, particularly with regard to environmental degradation.

    This is why I think the wise course is to not have subsidies an mandates for any type of energy production.

    I trust Engineers and scientists to work on the problem.

    I have zero trust in the problem solving ability of rent seeking lobbyists.


  8. benny,

    You said,

    The worst, most-subsidized roads are those to rural areas.

    Do you have a breakout for how much of that subsidy is for interstate highways and how much is for dirt roads in the country?

    I’m persuadable but I suspect the bulk of the road spending in the rural states are allocated to two things.

    1. Major transport projects in the densely populated areas of rural states, for example the TREX in Denver

    2. Interstate highways. I’m not sure it is reasonable to charge all of the spending on I-80 to wyoming when a substantial amount of the traffic is freight that is passing through wyoming on the way to somewhere else.


  9. I trust Engineers and scientists to work on the problem.

    Engineers and scientists are great at solving technical problems, but the solutions won’t be adopted unless they are economical. The problem with fossil fuels is that they are economical because we don’t pay the real price. The ideal solution would be to raise the cost in the form of taxes. But what we are doing with these tax credits – renewing them a year at a time – is terrible. Imagine the uproar from the corn guys if this was the case with ethanol.


  10. “The problem with fossil fuels is that they are economical because we don’t pay the real price.”

    Prove that statement!

    Humans have been using fossil fuels on a large scale since late in the 18th Century. If there were major costs not reflected in the price, then after 200 years we would expect to see those accumulated avoided costs pile up somewhere and have negative effects.

    Instead, what we see is that (compared to, say, 1800), lifespans are longer, people are healthier, homes are better, people live in cleaner environments, eat higher quality food, are better educated. In short, use of fossil fuels has resulted in extraordinary improvements in the lives of ordinary people.

    Where have all the hidden costs of fossils gone?

  11. “Engineers and scientists are great at solving technical problems, but the solutions won’t be adopted unless they are economical.”

    Nice way to frame the problem, Mr. R.

    So how do we make solutions economical? By regulating, taxing, and harrassing the competion? Not really.

    Your own words imply that political rob-Peter-to-pay-Paul games like energy tax credits are not the answer. Instead, we should be focusing on the real question — how do we encourage the development of technologies that can outperform fossil fuels without politically-driven subsidies?

    (As an aside, remember that even if Congress passed a 10-year subsidy this week, next week they could change their minds and repeal the subsidy. Political subsidies are always going to be risky).

  12. Where have all the hidden costs of fossils gone?

    I think I laid that out in my post. One, for instance, is in building a society that is incredibly vulnerable to disruptions in this finite resource. We have put power in the hands of people who hate us. We have put our energy security in the hands of others. We empower people like Hugo Chavez.

    That is one price that we don’t pay when we buy gasoline at the pump. Of course we also don’t pay any price for the carbon we emit. I understand that some here don’t accept that this is a problem, but I think everyone here would admit that it might be.

    Of course as I have said many times, my preferred solution is to simply raise fossil fuel taxes and let the alternatives compete on equal footing. I think a solution like DME has great potential, but not if politicians are misled into thinking butanol is so much better, and thus deserves better tax breaks.


  13. ==how do we encourage the development of technologies that can outperform fossil fuels without politically-driven subsidies?==

    By removing the politically driven subsidies for Coal and Nuclear.


    Another way of doing is to charge money for the economic damage caused by a power plant’s operation.

    This is actually significantly more effective than subsidies.

  14. ==If there were major costs not reflected in the price, then after 200 years we would expect to see those accumulated avoided costs pile up somewhere and have negative effects.==

    Ya think?!


  15. “We have put our energy security in the hands of others.”

    Yes, I agree that it is very dangerous for the US to rely on windmills imported from Denmark.

    But seriously, you have not made any real case that there are economic costs of utilising fossil fuels which are not reflected in the market price. Therefore, there is no economic argument for forcing ordinary people to pay additional taxes on fossil fuels. And certainly not for entrusting those taxes to the grasping, bloated, incompetent politicians who control Congress.

    Understand that I share your concerns about the human race’s reliance on finite fossil fuels. We really need to see progress (soon!) on alternatives which can genuinely undercut the market for fossils by delivering more for less. The question is how to encourage that technological progress — and politically-driven subsidies are not the answer.

  16. I think we should extend the renewable energy tax credits, but we also need to be realistic about the contributions alternatives might make to the energy problem.

    Here is a very good (albeit kind of boring) presentation on the limits of wind energy. Donn Dears, former GE Executive, presents: Clarity – The Role of Wind Energy .

    Donn explains that NREL estimates the US needs 100,000 wind turbines to replace 20% of our electricity. The LARGEST number of turbines installed to date is just over 3,000 turbines per year. Wind turbine manuracturers are at capacity and a new order placed today won’t arrive until 2011. To meet the needs of the US, turbine capacity would need to DOUBLE several times over.

    You can’t get there from here. The same is true for PV solar.

  17. All the costs of the Iraq war are a subsidy to the petroleum industry.

    Likewise all of the costs of other US military operations in the middle east.

  18. The LARGEST number of turbines installed to date is just over 3,000 turbines per year

    That’s old data. The US installed 5329 MW of new wind capacity in 2007. I wonder why he used old data for a new presentation.
    AWEA expects more than 7,500 MW of new wind capacity to be added in 2008, expanding America’s wind energy fleet by 45%.
    With that kind of exponential growth,
    “Wind energy installations are well ahead of the curve for contributing 20% of the U.S. electric power supply by 2030 as envisioned by the U.S. Department of Energy,” said Randall Swisher, AWEA’s executive director.

    Of course, that curve might flatten out before then, but we haven’t reach the limits yet. World wide capacity maybe sold out until 2011, but world wide capacity has been growing exponentially, so they already have sold out the 2010 capacity which is greater than the 2009 capacity, which is greater than the 2008 capacity, and the 2011 capacity will be even larger.

    The US has gone from 0.5% of our electricity being generated by wind 2 to 3 years ago, to about 1% today. So if we continue to double every 3 years, we’ll be at 2% in 2011, 4% in 2014, 8% in 2017, 16% in 2020, 20% in 2021. So there’s some room for the growth curve to flatten out a bit and still reach 20% by 2030. I don’t expect wind to ever fill 100% of our electricity needs, but 20% is not outrageous.

  19. Clee – at 1.5 MW per turbine, it works out pretty close to the 3,200 turbines per year. Whatever the exact figure is, we still need exponential growth in turbine capacity. That kind of growth will be difficult to achieve.

    The problem with the 20% figure is that power demand is GROWING. Maybe not exponentially, but even a modest growth rate of 2 or 3% on a large installed base of conventional power will make it even more difficult to achieve the 20% figure.

    The renewable subsidy is starting to also look like a permanent subsidy, like the 30 year ethanol subsidy.

  20. The average turbine size installed in the US in 2007 was 1.65MW. That’s been rising every year too.

    Yes, we will need exponential growth, but we have exponential growth. We could even slow down from doubling every 3 year to doubling every 5 years and still reach 20% by 2030.

    I find PV somewhat amazing with its exponential growth even higher than wind’s. Despite having silicon shortages, for the past few years they’ve still been able to increase MW production of PV by over 30% each of those “shortage” years.

  21. Donn Dears, former GE Executive, presents: Clarity – The Role of Wind Energy

    This clueless presentation contains numerous factual errors and distortions. He says wind only blows 30% of the time. It actually blows almost all the time. Furthermore, his 30% capacity factor is outdated — recent installations run close to 40% and future ones will do better.

    His repeated “double, redouble and redouble again” mantra is goofy. Wind capacity doubles every three years and he acts like 3 doublings in 22 years is impossible? He says no generators are made in the US (are you SURE he worked for GE?) and that gearboxes fail in 5 years (a few well-publicized failures haven’t even put a dent in the 30-40% growth rates).

    At historical growth rates wind will supply 20% of US electricity by 2018, not 2030. Of course the growth rate may slow below the historical trend. Or not. Right now the growth rate is actually accelerating.

  22. Not only should RETC be extended as part of our energy bill – we should stop playing into the hands of old industry and embrace the future. Here’s a petition based on that notion, in regards to the recent RNC tumult over Drilling Here.

    Cross posted from Environment America’s Daily Kos Diary Here

    I couldn’t quite believe it myself when I heard the crowd at the Republican National Convention last week, whipped up into a frenzy over the idea of opening our precious coasts to new drilling.

    Click here to see and hear it for yourself.

    In the last few days, 10,000 of us have urged our representatives and senators in Congress to say no to new offshore drilling, no to putting our beautiful coasts at risk of devastating spills, and no to the false hope of a quick-and-dirty fix to our energy problems. That’s a fantastic accomplishment in such a short time.

    But frankly, we need to do more to make ourselves heard over the din of “drill, baby, drill” — especially when Big Oil’s propaganda machine can so easily amplify their call on Capitol Hill.

    As soon as the next few days, Congress will vote on whether to pass an energy policy paid for by Big Oil or one that puts us on a path toward a clean, sustainable energy future. Tell Congress to put a stop to the Big Oil agenda right now.

    Take Action

    We’re raising the voice of people from all over the country to expose Big Oil’s self-serving agenda, which includes:

    * Saying NO to clean energy and energy efficiency tax credits,
    * Saying YES to $13.5 billion in tax giveaways to the oil industry, and
    * Saying YES to new drilling off our coasts.

    Let’s face facts. Big Oil’s agenda is not about saving us money at the pump. It’s about making them more money any way they can.

    As outrageous as that is, we cannot win without Congress hearing from more Americans like you.

    Click here to tell Congress to pass a sensible energy policy.

    “Drill, baby, drill” is no solution to our energy problems, not by a long shot. Help us stand up to Big Oil today.

    Thanks, as always, for making it all possible.

  23. doggydogworld,
    Apparently GE Wind is importing the electrical generators from abroad to install into the nacelles of the wind turbines they manufacture in the US.

  24. Clee, I thought about that but it makes no sense. I could see some small outfit focused on gearboxes like Clipper importing generators, but GE is a huge motor/generator manufacturer. With the weak dollar it’s absurd to import something they can easily make in their US factories. It’s not like five years ago when the business was small and the dollar strong. Even the foreign guys are building manufacturing plants here.

    I think this guy simply doesn’t know what he’s talking about or is using outdated info. That’d be consistent with the rest of his presentation.

  25. I tried to track down the claim that no wind generators are manufactured in the US, and it looks to me to be false. I tracked back references to
    Wind Turbine Development: Location of Manufacturing Activity
    Table 2.2 starting on page 41 lists wind generator manufacturers as
    Hitachi America, Tarrytown, NY
    Motors and Controls Intern, Hazelton, PA
    Northern Power Systems, Waitsfield, VT

    Maybe for some reason GE finds it cheaper to source generators from other countries. They are an international company afterall. When it makes more sense for them to manufacture generators for wind turbiines in the US, I figure they will. Either way, I don’t see how having the components made in some other country mean that we can’t reach 20% wind by 2030, considering it hasn’t stopped us from doubling our wind production every 3 years lately.

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