How Congress can achieve something by doing nothing.
The Wall Street Journal, December 12, 2013
The media are saying that the 113th Congress is on track to be “the least productive” on record—as if that’s bad for the country. Let’s hope gridlock lasts long enough to kill the crony capitalist special known as the wind production tax credit.
This subsidy that was supposed to be temporary is now 20 years old, providing a taxpayer gift to wind companies of 2.3 cents per kilowatt hour. The handout would cost $18 billion over the next five years. The good news is that it is due to expire on December 31 unless Congress acts to extend it, so House Republicans can accomplish something for taxpayers by doing nothing.
With more than 60,000 megawatts of generation in the U.S. and utility-scale projects in 39 states, wind-power producers are no longer an “infant industry.” The Department of Energy says that wind power made up 43% of all newly constructed generation in 2012, surpassing even natural gas.
Much of this production is due to the tax credit, which is so generous relative to the wholesale price of electricity that it is distorting energy investment. The handout brings the cost of wind production to nearly zero, which means wind producers are at times paying grid operators to take their wind electricity. This is discouraging investment in other forms of energy, especially in the natural-gas electric generation that is required to back up intermittent wind production—and to keep the lights on as the Obama Administration tries to kill coal-fired power.
The subsidy has become a giant wealth transfer to a few lucky states in the Midwest. A recent study by the Institute for Energy Research found that the top 10 wind-subsidy taking states—including Texas, Iowa, Oklahoma, Illinois and Minnesota—received 72% of the subsidy transfer in 2012. Taxpayers in 30 states and the District of Columbia were net losers, paying more to support wind subsidies than wind producers in their states received in tax credits. No wonder Iowa Senator Chuck Grassley is so keen to keep the credit rolling.
One admirable exception to the Wind Belt political rule is Kansas Rep. Mike Pompeo, who keeps reminding fellow Republicans that they claim to oppose corporate welfare. Last month he collected 52 House signatures on a letter to Ways and Means Chairman Dave Camp, noting that the tax credit undermines GOP efforts to reform the tax code and should be allowed to expire.
Mr. Pompeo fought this battle a year ago but lost when GOP leaders agreed to President Obama’s demand to extend the wind credit for another year. A one-year extension made it into the tax increase bill along with payoffs for rum producers and Nascar-track owners. The wind lobby is now trying to get the subsidy included in a January “tax extender” package and made retroactive. Never mind that even if the tax credit does expire it contains a phaseout provision that would allow some wind producers to pocket subsidies until 2026.
The smart politics for House Republicans is to make a principled case against corporate welfare of all kinds, including President Obama’s costly green-energy subsidies for some of America’s richest companies and investors.