Sep 19, 2012Peter Shrieve-Don
There’s plenty to be said about where the future of renewable energy lies. One piece of this puzzle that seems to be under a lot of fire this year is the federal subsidy known as the wind production tax credit (PTC).
Some background to the criticism: A rational economic argument asserts that government subsidies are a form of protectionism in direct conflict with free market principles, and thus lead to market inefficiencies. While there is certainly truth to this statement, its misuse is widespread. This is particularly the case for the oil and gas industry, which has regularly leveraged this laissez-faire stance in its fight against the wind production tax credit (PTC). Is it a valid claim?
The short answer? No, absolutely not. Let’s begin by understanding when and where government subsidies can be effectively used.
First discussed by Alexander Hamilton in his 1790 Report on Manufacturers, government subsidies have historically played a role in the development of the US’s infant industries, from oil and gas to nuclear energy. As these industries develop and gain efficiency, the idea is that they can not only provide thousands of domestic jobs in the process, but can also become self-sustaining and internationally competitive industries that massively expand the domestic economy. This was exactly what was done for coal in the 1800s, oil and gas in the early 20th century, and virtually all innovating energy industries in the US for the past 200 years.
While it would seem logical to do the same for the fast-paced renewable energy industry, big oil argues that this would create artificial (and unfair) competition that would lead to market inefficiency.
Unfair? Let’s look at the numbers. A recent report from venture capital firm DBL investors found that “the American oil, gas, and nuclear industries have cumulatively taken in more than $630 billion, with most of those government subsidies created in the earliest days of those sectors in order to build them up.” Compare that with the $50 billion in subsidies provided for the renewable energy (wind, solar, biofuels and geothermal) industry. On top of that, in the first 15 years of each subsidies’ life, the federal commitment to oil and gas was five times greater than the federal commitment to renewables.
Put all of this in light of the fact that big oil has outspent alternative energy four to one in 2012 campaign ads, and one begins to get an idea for the rent-seeking oil industry’s ability to perpetuate its energy dominance.
We know the facts: During the recession, wind energy was one of the very few sectors to add jobs. Wind energy is not only abundant, but it has the power to provide 20% of the nation’s energy by 2030, along with creating roughly 800,000 jobs in the process.
Subsidies have always played a critical role in the growth and development of energy industry, and there’s no reason not to give wind energy the same treatment. If we hope to reduce unemployment, grow the economy, and come out on top in the fight for energy security, Congress cannot let the wind production tax credit expire.