U.S. Energy Incentives
Wind Power: An Abundant American Energy Source
Support for U.S. wind power enhances energy diversity and energy security, promotes rural economic development, supports domestic manufacturing, protects consumers from price volatility and reduces power sector impact on the environment.
During the last century investment in, and government support for non-renewable energy sources (oil, gas, coal, and nuclear) created an abundance of affordable domestic energy. This support has helped power strong economic growth. Today, the environmental, water, and security challenges ahead require a more diverse, stable and clean energy mix. To meet these challenges, public policy will play a crucial role.
Role of Incentives in U.S. Energy Production
Incentives at the federal and state level have long been used in the U.S. to encourage investment in domestic, homegrown, affordable energy production, with every energy source receiving government support today.
- Incentives to spur domestic and secure energy production have come in many forms over the past century, such as tax breaks, direct investment, research and development, government risk insurance, and favorable market rules or regulations. Some government support programs for energy sources have been in place for as long as 100 years.
- The Congressional Research Service notes, "For more than half a century, federal energy tax policy focused almost exclusively on increasing domestic oil and gas reserves and production. There were no tax incentives promoting renewable energy or energy efficiency. During that period, two major tax preferences were established for oil and gas."
- According to an analysis by Management Information Systems, Inc., $837 billion has been provided across energy sources between 1950 and 2010, with 80%, or $667 billion, supporting non-renewable energy sources.
- DBL Investors provides an alternative view of government investment, showing the average annual support over the life of each source (depicted below), with average annual government spending ranging from $4.8 billion annually for oil and gas between 1918 and 2009, $3.5 billion annually for nuclear between 1947 and 1999, and $370 million annually for renewable energy (non-biofuels) between 1994 and 2009..
The primary program in place to encourage development of domestic energy production using wind energy is the Production Tax Credit (PTC).
- The PTC is a production-based tax credit provided to 12 different renewable electricity sources as well as refined coal and energy production on tribal land. This performance-based incentive has helped the U.S. wind industry lead the clean energy market and established the U.S. as one of the single largest markets globally for wind energy technology and development.
- Initially established in 1992, the PTC has expired three times: 1999, 2001 and 2003. This led to a 76% to 92% decrease in domestic investment in each of those years. The PTC has also been set to expire in other years (2007, 2008, 2009, and 2012*), causing uncertainty that led to job layoffs, loss of U.S. manufacturing, and wind project slowdown. However, during these years, the PTC was extended prior to expiration.
- The PTC differs from other tax-based energy support in its temporary nature, with the Congressional Budget Office noting "Only four major [energy] tax preferences are permanent, three of which are directed toward fossil fuels and one of which is directed toward nuclear energy."
- More on the PTC.
- Analysis finds that the investment in new wind projects, spurred by the PTC, provides tax payments to the Federal, State and local levels that exceed the initial cost of the PTC
*Note: The PTC did expire on 12/31/2012 and was extended for one year on 1/1/2013. More on the PTC.
With the support of the PTC, the U.S. wind energy industry has boosted the American economy:
- Over 550 U.S. manufacturing facilities across 44 states make components for the wind energy industry.
- Nearly 70 percent of a wind turbine’s value is produced here in America, compared to 25 percent prior to 2005.
- The price of wind power has dropped over 90 percent since 1980, benefiting utilities and electricity consumers.
- Average annual private investment in wind energy is $18 billion over the past five years.