Federal Energy Subsidies
Does wind energy receive federal subsidies, and if so how much? Do other forms of energy receive subsidies? Do fossil fuels receive more subsidies than renewables? Anyone engaged in stakeholder education and outreach will be asked these questions.
According to a study by the Environmental Law Institute, the federal government's subsidies to fossil fuels totaled approximately $72 billion during 2002-2008, while subsidies for renewable fuels totaled $29 billion over the same period.
The Production Tax Credit (PTC) has been a major driver of wind power development over the past decade. Originally enacted in the Energy Policy Act of 1992, the PTC is, as the name suggests, a production-based tax credit available to various renewable energy sources. The PTC provides a 2.3¢ per kilowatt-hour tax credit for the first 10 years of electricity generation for utility-scale wind. Congress has allowed the PTC to lapse five times since enacting it as part of the Energy Policy Act of 1992, and these lapses contribute to a boom-bust cycle of development. In the years following expiration, installations dropped between 73% and 93%, with corresponding job losses (see graphic: Impact of PTC Expiration on Annual U.S. Wind Installations). The value of energy-related tax provisions that benefit fossil fuels is projected to remain relatively constant over time as most provisions that benefit fossil fuels are permanent Internal Revenue Code provisions.
The alternative Investment Tax Credit (ITC) (available as of 2013) provides a credit for 30% of investment costs and is especially significant for the offshore and distributed wind sectors because such projects are more capital-intensive than land-based projects. In December 2015, Congress passed extensions of the PTC and ITC. As a result, the wind energy PTC will be extended for 2016. The credits will continue in 2017 at 80% of present value, in 2018 at 60%, and in 2019 at 40%. Wind projects will qualify if developers begin construction before the end of the designated period. Note that the ITC will not be available for "small wind" projects after 2016 (defined as projects up to 100 kilowatts in capacity), although other technologies (for example, solar PV) will continue to receive the credit.
Resources examining subsidy amounts and sectors are listed below.
Clean Energy Action. (July 26, 2013). Fossil Fuel and Renewable Energy Subsidies.
This report examines how fossil fuels have been subsidized, how these subsidies have helped the industry, as well as renewable energy subsidies, how subsidies have helped renewables grow, and why subsidies are important for economies of scale for cleaner fuels.
Environmental Law Institute. (September 2009). Estimating U.S. Government Subsidies to Energy Sources: 2002-2008.
The Environmental Law Institute conducted a review of fossil fuel and renewable energy subsidies for Fiscal Years 2002-2008. The findings are presented in the graphic Energy Subsidies Black, Not Green and in the report listed above.
Pfund, N.; Healey, B. (September 2011). What Would Jefferson Do? The Historical Role of Federal Subsidies in Shaping America's Energy Future. DBL Investors.
This paper frames the ongoing debate about the appropriate size and scope of federal subsidies to the energy sector within the rich historical context of U.S. energy transitions to help illuminate how current energy subsidies compare to past government support for the sector.
Sherlock, M. (September 18, 2012). Energy Tax Incentives: Measuring Value Across Different Types of Energy Resources. Congressional Research Service.
This paper provides background information on federal energy subsidies, comparing the cost of tax incentives associated with fossil and renewable energy resources, relative to amount of energy produced using each type of resource. The report also reviews other analyses that compare the cost of energy tax incentives relative to production, across different types of energy technologies. This report does not seek to analyze whether the current system of energy tax incentives is economically efficient, effective, or otherwise consistent with broader energy policy objectives.
Union of Concerned Scientists. (January 4, 2013). Production Tax Credit for Renewable Energy.
This webpage offers a history of the Production Tax Credit and includes a graphic showing the impact of Production Tax Credit expirations on U.S. wind installations.