Energy-Related Tax Preferences and Job Creation

July 12, 2012

Advocates of wind energy are actively lobbying Congress for a multiyear extension of the 2.2 cent-per-kilowatt-hour production tax credit. During the American Wind Energy Association's recent WindPower 2012 convention in Atlanta, Heather Zichal, deputy assistant to the president on energy and climate issues, argued that allowing the credit to expire would result in tens of thousands of job losses, says Robert Bryce, a senior fellow at the Manhattan Institute.

However, this same argument could be made regarding federal support for all types of energy; that is, if the government reduces its assistance, jobs will be lost. The question then becomes, just how much more effective are subsidies for wind energy at creating jobs?

  • In March, the Congressional Budget Office (CBO) reported that energy-related tax preferences for renewable-electricity production totaled $1.4 billion in fiscal year 2011, the vast majority of which went to the wind-energy sector.
  • Using the American Wind Energy Association's own figures for jobs created by this funding, the per-job cost to taxpayers amounts to between $18,700 and $46,600.
  • This figure should be compared to current government support for the oil and gas sector: using the CBO's $2.5 billion tax-preference figure and the American Petroleum Institute's employment figures, the per-job cost to taxpayers amounts to between $1,190 and $2,100.
  • Put another way, each wind-energy-related job costs taxpayers between nine and 39 times as much as a job created by the oil and gas sector.

At such an enormous cost on a per-job basis, it is extraordinary that the federal government continues to pump money into the sector. Further, the calculations above do not take into account the $3.25 billion in tax-free grants that were given to the wind-energy sector by the Treasury Department as part of the American Recovery and Reinvestment Act between 2009 and 2011.

By attempting to artificially stimulate the wind energy sector, the federal government is paddling upstream against natural market forces.

  • As a source of electricity, wind energy must now compete with the surging natural gas sector.
  • According to various estimates, wind energy can only be viable if natural gas prices are above $6 per thousand cubic feet.
  • Given that they are currently around $2.20 per thousand cubic feet, it should come as no surprise that many wind farmers cannot lock up long-term production contracts.

Source: Robert Bryce, "Energy-Related Tax Preferences and Job Creation: Which Industries Provide the Best Value for Taxpayers?" Manhattan Institute, June 2012.

For text:

http://www.manhattan-institute.org/html/ir_18.htm

 

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