In this political season of wild applause and loud catcalls, let us reserve some of the former for policymakers willing to endorse positions unpopular at home but consistent with the larger public interest. In particular: a hearty round for U.S. Rep. Mike Pompeo, R-Wichita, who despite local pressures has offered strong opposition to an extension of the production tax credit for wind power.
The PTC, now 20 years old, is scheduled to expire at the end of this year. Despite years of claims that just one more extension – there already have been six – would make wind power competitive, investment in the industry is collapsing as a final burial for this massive subsidy looms large. And “massive” is the right adjective to describe the distortions that the PTC creates for the electric power sector, the hidden costs that it imposes on consumers and taxpayers, and the weakness of the arguments offered to support it.
The PTC encourages the producers of wind power to underprice their electricity in local markets, thus distorting the mix of generation away from the one that minimizes overall production costs. The general underpricing problem will yield underinvestment over time and a sharp reduction in the efficiency and reliability of the electric system. There are no free lunches.
The argument that the PTC “creates thousands of jobs” conflates full-time, part-time, permanent and temporary employment across businesses with vastly different degrees of importance to the production of wind power. More important, it ignores the adverse employment effects of the federal taxes needed to finance the PTC, and of the economic distortions and hidden costs.
The PTC does not level the playing field with the supposed subsidies enjoyed by fossil fuels: The subsidies given wind and other renewables are hundreds of times larger per megawatt-hour, and the tax provisions affecting conventional generation are not “subsidies” properly defined. (Example: The percentage depletion allowance is a form of depreciation.)
Pompeo understands that Congress does not hand out favors for free. Just as taxpayers in other states are forced to finance the PTC for Kansas wind farms, the complex bargaining process in Congress that yields federal budget outcomes means that Kansas taxpayers must foot the bill for pork elsewhere, with the federal bureaucracy taking a healthy cut of the action.
Kansas should applaud the end of the PTC.