Thursday, September 27, 2012

Energy and Tax Policies Must be Reconsidered as Wind Subsidy Comes to an End

Wind power has been a success story of green energy. After several years of rapid growth, it now accounts for about 3 percent of all electricity produced in the United States. It has benefitted from federal support, but that support is scheduled to end on December 31, throwing the industry into a crisis of layoffs and cancelled installations.

The country needs wind power, and wind power needs a favorable policy environment. For those reasons, it is tempting to support a simple extension of the current policy. However, it would be even better to use the looming deadline as an occasion to rethink both energy policy and tax policy.

Makers, Takers, and Energy Policy

It has become fashionable during this presidential campaign to glorify “makers” and disparage “takers.” The distinction applies as much to energy as to any other industry. Makers are those who produce energy that has a value to users that exceeds its costs. Takers are those who make a profit from producing energy that costs more than it is worth by shifting part of those costs to others.

Producers of fossil fuels head the list of takers. Federal tax breaks for mining and drilling are part of the problem, but not the biggest part. More importantly, fossil fuel companies are takers because production and use of coal and oil (and to a lesser extent, of natural gas) have harmful spillover effects on the persons and property of third parties who are neither producers nor users themselves.

Those spillover effects, which economists call externalities, take several forms. Local smog and regional acid rain pollution are examples. Climate change caused by carbon emissions from coal, oil, and natural gas is another. National security costs arising from dependence on unreliable foreign energy supplies are a third. Issues related to water use, land use, and aesthetic values are still other categories of external cost.

Read more: http://oilprice.com/Alternative-Energy/Wind-Power/Energy-and-Tax-Policies-Must-be-Reconsidered-as-Wind-Subsidy-Comes-to-an-End.html

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