Breaking wind
It’s budget season, and with budget season comes a renewed debate over one of the most depressing elements of American politics – namely, its tendency to pick winners and losers based solely on the arbitrary political whims of individual legislators. As such, it’s no surprise that the Senate is considering pushing the Wind Production Tax Credit into its tax extenders package this week.
Unfortunately, like many of the worst pieces of legislation passed in recent years, this particular bit of bad economic medicine has a spoonful of sugar that many lawmakers find particularly easy to swallow. Namely, the fact that it has bipartisan support. Specifically, both Democrats like Mark Udall of Colorado, and Republicans like Chuck Grassley of Iowa, have signed letters that support extending the credit. At the state level, 23 governors have signed a similar letter.
On the one hand, it’s easy to see why bipartisanship of this kind carries so much currency in Washington, especially at a time when the two parties are otherwise historically polarized. In this context, bipartisanship can recommend a piece of legislation based on a cunningly disguised logical fallacy which posits that if both parties can agree on something, when they agree on so little, it really must be a noncontroversial public benefit. This is a naïve, if understandable, view insofar as it ignores the fact that many exercises in bipartisanship happen simply because the politicians in question are united more by common desire for economic favoritism and corporate welfare than they are divided by party affiliation. The Stop Online Piracy Act was one good example of such a bill.
Similarly, in this case, one doesn’t have to be an investigative journalist to see how the desire for campaign cash is the uniting factor. Grassley, for instance, has been on the receiving end of $5,000 from the wind industry, while one of Udall’s top five contributors throughout his career has been the alternative energy company NextEra Energy, who have given him a total of $42,000 over five years. In the words of Frank Underwood, “when the t—’s that big, everybody gets in line.”
Campaign donations alone don’t prove a lack of due diligence, but in this case, they certainly raise the question. The wind production tax credit is built on nothing but empty air. To begin with, the wind power industry reaps an unprecedented level of subsidies from the federal government relative to other forms of energy, taking in $24/megawatt hour, in comparison with $1.65 for all other forms of industry except solar. For this reason, the last extension of this credit cost taxpayers $12 billion.
This might be acceptable, or at least defensible, if the wind plants in question were producing energy Americans were actually using. But in fact, the subsidy is structured such that no one ever checks whether that’s actually the case. Rather, the credit simply assumes that if wind power is producing electricity, someone must want it, and forks over the money to wind companies regardless of whether the power they produce is wanted or needed. This runs entirely contrary to free-market practices, and to common sense.
What’s more, wind power has failed at an international level. As the German newspaper Der Spiegel noted about their own country’s experiment with a similar subsidy:
Indications are mounting, however, that green capitalism will not be able to meet all expectations. In courts around the country, complaints are mounting from wind park investors who haven’t received a dividend disbursement in years or whose parks went belly up. Consumer protection activists are complaining that many projects are poorly structured and lack transparency. In the renewables sector, fear is spreading that the Prokon bankruptcy – combined with plans for a reduction in the guaranteed feed-in tariff recently released by new German Economy Minister Sigmar Gabriel – could scare away investors.
Defenders of wind power claim the industry is still a fledgling one and needs time to be allowed to grow. But the fact is that the industry has been subsidized since 2009, and shows no signs of slowing down in terms of the amount of money it demands from the government. The entire point of a free market is to see which fledgling industries deserve to survive on their own, rather than pretending that some deserve special treatment simply because they aim to achieve objectives that are consonant with the wishes of political leaders. The wind industry is dependent on never having to leave the nest. If it can’t survive after five years of being propped up in a way that other industries are not, it may be time to throw in the towel and wait for something more economically viable.
In other words, the wind production tax credit is not so much a case of bipartisan common sense as it is of bipartisan cronyist irrationality. It’s time the federal government finally let the wind out of the sails of this unprofitable experiment.
