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A serious energy policy debate blows through 2012 campaign

On the campaign trail in Colorado Thursday President Obama assailed Mitt Romney for opposing the tax break for wind energy production, saying the presumptive nominee would put tens of thousands of jobs at risk by letting them expire.

“At a moment when homegrown energy, renewable energy, is creating new jobs in states like Colorado and Iowa, my opponent wants to end tax credits for wind energy producers,” Obama said.

“Think about what that would mean for a community like Pueblo. The wind industry supports about 5,000 jobs across this state. Without those tax credits, 37,000 American jobs, including potentially hundreds of jobs right here, would be at risk.”

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Wind energy now supplies about 4 percent of U.S. electricity, up from 1.3 percent in 2008.

A spokesman for Romney's Iowa campaign said last week that Romney “will allow the wind credit to expire, end the stimulus boondoggles, and create a level playing field on which all sources of energy can compete on their merits."

Romney’s stance on the wind energy tax break puts him at odds with Republican senators such as Jerry Moran of Kansas and Chuck Grassley of Iowa. It was Grassley who pushed for the wind tax credit when it was created in 1992.

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But Romney won applause from one GOP House member, Rep. Mike Pompeo of Kansas, who has proposed a bill to abolish all energy tax breaks. “The Solyndra scandal has demonstrated that taxpayers must no longer be forced to subsidize these industries,” Pompeo said last week. “When the government bets on these energy technologies, it typically selects the most unaffordable energy leading to unnecessarily higher energy prices for all Americans.”

Solyndra, a California solar-panel manufacturing firm that got a $535 million federal loan guarantee, filed for bankruptcy last year. Energy Secretary Steven Chu has acknowledged that the $535 million isn’t likely to be recovered.

Beyond the campaign rhetoric and the question of whether Romney’s anti-wind tax credit stance will hurt him in two wind-energy loving battleground states (Colorado and Iowa), there’s a serious economic debate here.

It hinges on the classic question: what activities and industries, if any, should the government require taxpayers to subsidize? Is it ever possible to have a “level playing field” so that consumers can choose the energy source that’s most cost effective?

And when Congress creates and preserves tax breaks for favored industries, does it also perpetuate the entrenched culture of lobbyists and special interests seeking favors from Congress?

In this case, every few years the wind energy industry and its lobbyists must urge Congress to give the tax break another lease on life before it expires. Lobbyist filings show that the American Wind Energy Association spent $1.1 million in the first half of this year on lobbying Congress.

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The group has hired lobbyists such as Juleanna Glover of the Ashcroft Group, former Louisiana Republican Rep. Jim McCrery of Capitol Counsel, and Elmendorf Ryan’s Steve Elmendorf, an aide to Dick Gephardt when he was House Democratic leader.

A pragmatist would say there’s nothing new here: the wind industry is just getting in on a subsidy game that other energy industries have played for decades.

As a Congressional Budget Office report noted in March, “Tax preferences for energy were first established in 1916, and until 2005 they were primarily intended to stimulate domestic production of oil and natural gas. Beginning in 2006, the cost of energy-related tax preferences grew substantially, and an increasing share was aimed at encouraging energy efficiency and energy produced from renewable sources, such as wind and the sun….”

That CBO report said energy-related tax breaks cost $20 billion in 2011 and 68 percent of them went to renewable energy, while only 15 percent went to fossil fuels.

Under current law, for a wind facility that starts operating by the end of this year, the owners can claim a 2.2 cent tax credit for each kilowatt hour of electricity produced. The tax credit is good for a 10-year period.

In a bill approved by the Senate Finance Committee last week, the wind production tax credit was extended through 2013 but it was also modified in a significant way, said energy industry consultant and blogger Geoffrey Styles.

The Finance Committee bill would make wind energy facilities eligible for the tax preference if the construction of such facilities or property begins before Jan. 1, 2014. “This will sweep in many more projects,” said Styles. “It has the effect of being much more than a one-year extension” since as long as a project gets started – not completed -- before Jan. 1, 2014, it would be eligible for the tax break.

According to the staff of the Joint Committee on Taxation, the proposal would cost $12 billion in lost revenue over ten years.

Energy economist William Pizer, who served as Deputy Assistant Secretary for Environment and Energy at the Treasury Department from 2008 to 2011 and now teaches at Duke University’s Sanford School of Public Policy, said the tax break is less than ideal energy policy for a variety of reasons.

One is the inefficiency of a subsidy compared to higher tax on more polluting energy sources such as coal and oil. And he said frequently some of the benefit of the tax-break flows to “tax equity partners” who are brought in to join with the actual wind energy project company.

And noting that the wind energy credit has expired three times since 1992 (with Congress ultimately reviving it each time), he said, “The boom-and-bust cycle has been problematic for the industry.”

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When analysts at the nonpartisan Tax Policy Center in Washington looked at the wind and other renewable energy tax breaks that were part of the 2009 stimulus bill, they said, “In general, these subsidies are less cost-effective than price increases” which Congress could impose through higher taxes on fuels such as coal.

The Tax Policy Center added that, “Such subsidies are very hard to remove once they have outlived their usefulness, since they develop powerful constituencies.”

In a blog post last week, Styles noted that during the 20 years in which the renewable energy production tax credit “has been escalating annually with inflation -- from 1.5¢ per kilowatt-hour (kWh) to the present level of 2.2 ¢/kWh -- the cost of wind turbines and (the cost of) their output has fallen significantly.” During that same period, wind energy capacity in the United States grew by 30 times.

So, Styles said, “in effect, we're subsidizing today's relatively mature onshore wind technology by a larger proportion than we did when it was in its infancy. That makes no sense, especially in the current environment.”

One factor which might call into question the competitiveness of wind energy in the marketplace is the new abundance of domestically produced natural gas in the United States.

But Ellen Carey, a spokeswoman for the American Wind Energy Association said, “One of the reasons the U.S. is able to enjoy this new abundant source of low priced natural gas was the multi-decade government support of the Section 29 production tax credit for unconventional gas. The production tax credit for wind energy ensures we build a diverse and stable portfolio of energy and do not over rely on a single energy source which exposes us to potential volatility.”