EPA administrator is out of bounds on Production Tax Credit

Environmental Protection Agency Administrator Scott Pruitt recently called for the repeal of the production tax credit (PTC) for wind energy generators stating, “I’d let them stand on their own and compete against coal and natural gas and other sources.”

Citizens hope and even expect that their governments will be efficient. However, they require government to undertake national defense, to provide a safety net in times of need (e.g., natural disasters, disability, supplemental nutrition assistance) and act to advance public health and safety and the general welfare. 

{mosads}These are quintessential governmental functions, with the duty to reduce risk from the potential exposure of environmental pollutants falling to Pruitt’s EPA. While the administrator’s statement would be within the bounds of reason (although inaccurate and/or misleading as described below) coming from the president or the secretaries of Commerce or Treasury, it is out of bounds coming from the administrator of EPA. Indeed, the statement is diametrically opposed to EPA’s central mission.

However, we can think more broadly about having wind “stand on its own” against coal and natural gas — that is, a world where all technologies “stand on their own.” First, all energy technologies receive subsidies. Subsidies help energy technologies mature, improve, gain economies of scale and ultimately decrease in price. This pays dividends to consumers and creates economic development opportunities. The 2017 prices for land-based wind power, commercial-scale solar and residential solar PV and the related employment in the renewable energy industry in the U.S. are testament to that proposition.

The issue is not so much subsidies received by wind that will expire in 2020, as the issue is about fossil fuel subsidies that are ignored by Pruitt and that have been in place for decades, some going back approximately 100 years. If the administrator wants wind to stand on its own, I take it he will also call for Congress to repeal all of the perpetual fossil fuel subsidies that live are in the tax code.

To have wind stand on its own against nuclear power would likewise require Congress to repeal subsidies such as the nuclear power PTC (why the wind but not nuclear PTC?) and the Price-Anderson Act, which places a large financial burden on taxpayers should there be a costly nuclear power accident rather than having the owner be responsible for the full amount of the damage.

In addition, for wind to stand on its own, coal and natural gas would first have to account for damages they causes during their life-cycles (from mining to transportation to air emissions to waste) that are not accounted for in the sale of electricity. There are techniques for estimating and internalizing the costs associated with life-cycle damages that have been devised by economists.

For simplicity, we can set aside all damages except for those that occur from emissions, ignoring climate damages, which the administrator discounts, and excluding other environmental damages as well. Even in such a favorable landscape to fossil fuels, where only the fossil fuel emission damages to human health are monetized, much more fossil fuel generation, and in particular coal, would be sidelined than under the status quo.

All of this suggests that rather than having wind stand on its own, the administrator desires wind to be on its knees.

What would happen if we created a level playing field, monetizing all damages and eliminating all tax benefits and subsidies? We would usher in the renewable energy world much more quickly then under the status quo. And we could then take the payments (either in the form of taxes or tradable permits) on something we do not like — pollution — and use it to advance societal goals such as decreasing marginal tax rates, tax equity and transition assistance to coal communities. 

There will of course be losers — primarily investors in fossil fuels, but they are no different than any other investor who can protect against loss through diversification. And the contraction of one technology as a new and better one comes forward it simply the story of America, and indeed, the world: fossil fuels replacing the whaling industry; automobiles replacing the horse and buggy; the calculator replacing the slide rule, the computer replacing the typewriter; digital technology replacing film, and so on.

What I suggest is a win-win-wind solution: fewer deaths, less time away from work due to illness, lower health insurance costs, respect of our fellow citizens living in coal communities, more growth in clean energy jobs and more homegrown, local domestically-sourced clean energy.

Jeremy Firestone is a professor at the University of Delaware’s School of Marine Science and Policy and the director of the Center for Carbon-free Power Integration.