After 20 years and many extensions, the federal Production Tax Credit (PTC) was scheduled to expire at the end of 2012. Neither the House nor the Senate saw fit to extend this overly generous corporate benefit when it was considered on its own merits, and the PTC did, in fact, expire.
But in the final hours of the fiscal cliff negotiations, a provision in the American Taxpayer Relief Act (P.L. 112-240) surreptitiously added a $12 billion, 1-year extension of the PTC. [1]
This move was done behind closed doors, without debate, any opportunity for amendment, or obligation of the Congress to find a way to pay for it.
The abuse of the Public Trust did not end there. With this extension, a critical change to the PTC was introduced that relaxed the eligibility requirements for the credit. Renewable energy projects now need only ‘commence construction’ by January 1, 2014, to qualify for the credit, instead of the projects being ‘placed-in-service’ by that date.
IRS Interpretation Forthcoming
Since the law did not define what it means to ‘commence construction’, the Internal Revenue Service (IRS) must determine the intent of the Congress and develop clarifying guidance.
Not surprisingly, this is leading potential PTC beneficiaries and wind energy proponents to pressure the IRS to accelerate its rulemaking process. In February, 30 members of the House Sustainable Energy and Environment Coalition (SEEC) sent a letter to the IRS and Department of the Treasury encouraging them to act swiftly in issuing guidance on the eligibility qualifications for the credit.
The American Wind Energy Association supports the IRS’s moving quickly to provide guidance that generally adheres to the relaxed criteria adopted under the Section 1603 cash grant program.
Since the law is silent on when a qualifying project must go into service, the incentives for gaming the ‘commence construction’ requirement are substantial — especially given the potential value of the tax credits in scale and duration, and the anticipated expiry of the program itself at the end of this year.
David Burton, partner at Akin Gump Strauss Hauer & Feld, has stated that developers who plan well and bank enough 2013 PTC-eligible component parts, “may be able to continue to construct PTC-eligible wind farms indefinitely.” This particular form of regulatory ‘gaming’ would encumber taxpayers with subsidy obligations for projects that may not go into production for many years after the PTC provision has expired.
With the Treasury and the Department of Energy already under fire for the mishandling of the Section 1603 cash grants and Section 1705 loan guarantees, it is essential that Congress exercise its oversight responsibilities in this matter. Representative James Lankford (R-OK), chair of the newly formed House Oversight Subcommittee on Energy Policy, Health Care and Entitlements, has already stated that his Subcommittee will be watching the PTC and not leave the rule making in the hands of government regulators.
Competing Criteria
Based on past actions by the wind industry, there are several criteria for defining “commence construction” that deserve consideration:
1. Institute an in-service date for projects.
– Current law only designates a start construction date.2. Require project financing and permitting to be secured.
– Projects must demonstrate evidence that all local, state and federal permits are in place and project financing is secured.3. Prohibit the safe harbor when determining start construction as used under the 1603 cash grant program.
– Prohibit the counting of monies expended for project components by the developer or by contacted vendors when determining start construction.4. Require available transmission.
– Projects must demonstrate available transmission before starting construction.5. Proof of meaningful construction.
– Require a minimum percentage of project completion to be achieved by January 1, 2014, which includes a physical metric that is measurable. Project construction applies to the entire proposed site; individual wind turbines within a larger project will not be treated as projects independent of development plans. Site preparation including land clearing is insufficient proof of ‘commencing’ project construction.
Time to Toughen
At the end of 2012, lobbyists for the wind industry teamed with the Senate and the Administration to push through this latest extension of the PTC with no debate or opportunity for amendment. They turned pressure to avoid the putative fiscal cliff to their advantage, while leaving American taxpayers to pay the price.
Unless Congress intervenes, it appears likely that the problems associated with the extension of this subsidy may be compounded – not alleviated – in the IRS rulemaking process.
After thirty years of failed promises about the impending competitiveness of wind power, it is time to get tough on the kings and queens of corporate welfare.
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[1] Energy tax extenders were part of the Senate Finance Committee mark-up of S. 3521 (112th): Family and Business Tax Cut Certainty Act of 2012 which was reported by the Committee but died with no vote or debate by the full Senate.
I’ve given up hope the wind industry and co-regulators will do the right thing, or even accept the right thing if forced by the public through regulation. They have sucessfully played ‘bop the mole’ for 40 years.
The only way forward is to stop the game. The best hope is Mr. Pompeo’s “Energy Freedom and Economic Prosperity Act (EFEPA)”, which would reduce government interference in the energy sector by repealing all energy tax credits.
This article contains several misrepresentations, a few of which are addressed below:
In fact, the Production Tax Credit (PTC) did receive debate and bipartisan support, passing out of the Senate Finance Committee last year as part of a “tax extenders” package, which included the PTC, by a 19-5 vote.
The U.S. has a long history of subsidizing all forms of energy production to keep consumer energy costs low. Extending the PTC for wind is consistent with that goal.
But for a fair comparison, one must have a historic perspective. As the Congressional Research Service notes, “For more than half a century, federal energy tax policy focused almost exclusively on increasing domestic oil and gas reserves and production.” In fact, according to a DBL Investors study, the oil and gas industries have received five times more federal support than renewables during the first 15 years of each set of incentives. In total, there has been nearly $600 billion in government support to bolster the production of conventional fossil energy sources.
Smart tax policy drives economic growth. The PTC has succeeded in driving investment – $25 billion in private funds last year alone.
That investment in wind power has worked, as the wind industry supply chain now spreads across 44 states and 500 facilities. More than 67% of the content of the average wind turbine installed in the U.S. is domestically produced, compared to approximately 25% in 2005 and 75,000 Americans are now employed in the industry.
Those numbers represent real economic growth and development largely achieved in tough economic times.
An “all-of-the-above” energy policy means creating and keeping policies that create economic growth, drive down consumer cost, and make our country more energy secure. By any of those metrics, American wind power and the PTC are clearly succeeding.
Mr. O’Rourke:
First, thanks for AWEA’s view at MR, which today is ranked #7 of 10,597 ‘green blogs’ according to Technorati. Unlike some other blogs (Climate Progress), we welcome dissent so long as it speaks to the issues as yours does.
One fact concerns the history of relative energy subsidies. The coal, oil, and gas industries have received special subsidies, including from tariffs, quotas, and special tax provisions decades and more ago.
But none of these things created or saved an industry. The oil and gas industries, for example, were around for a half-century before federal taxation.
Their subsidies have been special-interest cronyism in the name of this or that, and these subsidies today pale in comparison to those received by wind, solar, and ethanol on a per-unit basis as Mary Hutzler recently testified before Congress (http://www.instituteforenergyresearch.org/2013/03/13/ier-senior-fellow-targets-wasteful-energy-subsidies/).
If there is a fact or interpretation in Hutzler’s widely read analysis that you feel is wrong or misleading, please bring it to our attention in a future comment.
One other point: the oil, gas, and certainly coal industries are more penalized than subsidized by federal policy. Is the wind industry penalized in any significant way by the feds or states–or enabled by such things as Texas’s renewable mandate?
Mr. O’Rourke, your assertion that the PTC and other perks for the wind “system” works and create growth, are not in keeping with international experience. Largely due to wind and solar, Spain has lost 2.2 jobs per so called “green” job, and Italy has similarly lost 5.4, the UK, four. Danish wind producer, Vestas, busy selling parts to North America, and beyond, admitted recently that they would now like “assurances” from various parts of the world before they continue production (sales are low and jobs are being lost inside Vestas by a large margin now), and CEO Ditlev Engels wonders if the wind industry is suffering from a “credibility issue.” Given what we know about now widespread political insecurities re wind power, and the growing rage within grassroots groups everywhere, wind policies are indeed a rocky boat. I would not bet a safe landing. It is only a matter of time now.
Thank you for the comments. I would like to address two points made by Mr. O’Rourke. First, the Senate never brought the Finance Committee’s tax extender bill to the floor of the Senate. Nor did the House have any opportunity to consider the extension. The only debate surrounding the 1-year ptc extension happened within the Committee itself. Second, NO FORM of electric generation that’s based on traditional fuel sources (oil, gas, coal) receives anything that looks like the PTC which pays for every kwh of energy on the grid. Rather, the subsidies for oil, gas etc are tied to mining, mineral extraction etc — which are not unique to energy. (Note: Nuclear does receive a subsidy per kwh but it is strictly capped.)
Kevin O’Rourke from American Wind Energy Association claims that this article contains several misrepresentations. This is a very surprising comment coming from an organization that probably discloses about 5-10% of the birds and bats killed by this industry’s turbines. In fact most everything I ever read about the wind industry is misrepresented.
But now that I have your attention, how about giving everyone an accounting of the golden eagles killed by wind turbines in Texas over the last 20 years. I know that you do not have to disclose any of this information because regulations for the wind industry are voluntary, but golden eagles are dying at turbines in Texas and many would like to know. I would bet a lot more would like to know, but millions are not even aware that this is happening. You do not even have to talk about the bird radar that doesn’t work. . Keep in mind that I can also help the AWEA and FWS find the 200-250 whooping cranes that have gone missing since 2006 and count the remaining survivors to within 2-5% of their population in one flight of the Aransas region. This would be very helpful because the FWS is not sure if there are 178 or 362 left flying free.
Lastly I wanted to let you know that I reviewed another mortality study recently. This should be of great concern because the mortality is not the AWEA average of 2.9 per MW per year, but clearly in the range of 500-600 fatalities per MW per year. This is about 200 times greater. You may want to update your web site.
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