The Impact of Federal Wind Energy Subsidies on States

January 2, 2014

Federal wind subsidies enrich some states at the expense of taxpayers in other states, according to a new report from the Institute for Energy Research.

The federal government grants a wind production tax credit (PTC) to wind facilities.

  • The PTC gives producers a tax credit for every kilowatt-hour (kWh) of electricity that is generated from wind.
  • Currently, the credit is worth 2.3 cents per kilowatt-hour.
  • This is a subsidy of around 50-75 percent of the wholesale price of electricity, and it is worth 3.4 cents to 3.7 cents per kilowatt-hour in pre-tax value.

This year, Congress and the IRS increased the amount of the PTC, raising it from 2.2 cents per kWh to 2.3 cents per kWh. This is a $500 million increase for the wind industry.

  • Moreover, the eligibility requirements for the credit were changed by Congress. Wind facilities can now claim the credit for 10 years as long as "physical work of a significant nature" begins in 2013, or if the wind company commits 5 percent of the total cost before the end of 2013.
  • The Joint Committee on Taxation estimated that if the PTC is extended at the end of 2013, it will cost taxpayers $6 billion.

The study analyzed which states are large takers under this program, and which states are large payers. However, some wind facilities elect to take an investment tax credit instead of the PTC. For the purposes of the analysis, the study's authors assumed that all wind production built over the last decade in the United States received the PTC, a measure the report calls the "proxy PTC."

Using the proxy PTC measurement, taxpayers in 30 states suffered a net loss by paying more to the federal government in 2012 to support wind subsidies than wind producers in those states received.

  • Of the 30 states that suffered a net loss from paying into the subsidy program, 11 states and the District of Columbia had no wind production at all and received zero subsidies.
  • The study found that five states (California, New York, Florida, New Jersey and Ohio) were "net payers" of more than $100 million.
  • Four states (North Dakota, Oklahoma, Iowa and Texas) were "net takers" of more than $100 million.
  • Texas was the largest taker of subsidies, with wind producers taking $642.5 million in PTC subsidies, while Texas taxpayers only paid $248 million into the program.

Source: "Estimating the State-Level Impact of Federal Wind Energy Subsidies," Institute for Energy Research, December 2013.

 

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