Whose Economy?

Unable to extend tax breaks as part of the energy bill signed into law just two months ago, some are trying to attach them to the emergency economic stimulus package. As the package emerged this week from the Senate Finance Committee, among the items added was a string of energy tax credits aimed at giving a boost to wind and solar energy industries. The existing tax breaks are set to expire at the end of 2008. The economic package would extend all of the credits to the end of 2009. Wind and solar industry lobbyists have pushed for the tax extensions, but efforts to get them into the energy bill enacted just before Christmas failed. With lawmakers facing political pressure to respond to the threats of an economic recession, the stimulus package was seen as a way to piggyback in the energy tax breaks. The PTC itself, using taxpayer money, pays about half of the cost of electricity from wind turbines.

“The stimulus package should underscore the nation’s commitment to energy efficiency and alternative energy,” said Iowa Sen. Charles Grassley, the top Republican on the Senate Finance Committee, arguing for including the tax incentives, despite GOP leaders’ opposition to adding to the $161 billion House bill. Although the energy tax provisions would be extended only to the end of 2009, if they were to continue over 10 years the cost to the government would be $5.75 billion, according to the Finance Committee. IF the credit is extended through 2009, the cost do persist for ten years. The expiration at the end of 2009 would set the latest on-line date for facilities, not the end of tax credits going forward.

“Investors need certainty. They won’t put their money out for a wind energy facility unless there’s a reasonable expectation that tax incentives will continue into the future,” said Grassley.

The problem with this approach is that the majority of wind turbines installed in the U.S. are imported from foreign manufacturers. The most recent data, from 2005, shows that 60-65% of wind turbine installations are foreign sourced. So the only economies truly stimulated by adding the PTC into the stimulus package are those countries (Denmark, Germany and India) that have the lion’s share of the world turbine market. The PTC should just as logically be part of a foreign aid package.

And, if investors need certainty, which is true, they receive just as much certainty if the credits are allowed to expire as scheduled.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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