Impact of Tax Policies on the Commercial Application of Renewable Energy Technology and on U.S. Economic Recovery
Government Subsidies and Tax Incentives for Clean Energy: The wind, solar power, biofuel and ethanol industries do not meet the standard criteria used to justify taxpayer-funded subsidies for their deployment across the U.S. economy. They are not “infant industries,” are not essential for U.S. economic and job growth and they are unlikely to provide benefits commensurate with their costs. All taxpayer funded programs have opportunity costs since their existence means less money is available for other programs or for the taxpayers themselves to spend. Addressing the huge U.S. federal budget deficit requires cutbacks in programs whose costs exceed their benefits.
Renewable Energy Costs are High: Energy use is a key component in U.S. economic recovery, in recent years each 1% increase in GDP in the U.S. has been accompanied by a 0.2% increase in energy use. Data from DOE’s EIA show that new electric generating capacity using wind and solar power tends to be considerably more expensive than conventional, available and secure natural gas and coal resources. Data on the American Recovery and Reinvestment Act of 2009’s 1603 grant program shows that the programs’ cost electric generation cost per mega watt hour is almost three times more expensive than is solar thermal (the most costly source of electric generations shown in EIA’s tabulation).
Green Jobs are Few and Costly: Anecdotal estimates of job creation in renewable energy suggest that the government’s projections of expected new jobs may be significantly overstated and that the cost of each green job is high. The cost to taxpayers to create each short term job under the Recovery Act’s 1603 program ranges from about $63,000 to over $91,000. The cost of permanent renewable energy jobs (a total of about 5,000 per year for the next 20 or so years) ranges from over $81,000 to over $88,000. In contrast to the cost of creating jobs under the 1603 program, the average U.S. median wage of all occupations was $45,230 in 2011.
Renewable Energy Receives Largest Share of Tax Code Subsidies: In 2010, an estimated 76% of the $19.1 billion in federal tax incentives went to renewables, for energy efficiency, conservation and for alternative technology vehicles while only 13% went to fossil fuels according to the Congressional Research Service (CRS). Some renewable electricity enjoys negative tax rates: solar thermal’s effective tax rate is -245 % and wind power’s is -164%. Countries like Germany, the UK, Spain, Italy and Australia are cutting subsidies for renewable energy.
Tax Code Should be Neutral: Accelerated depreciation, Section 199, the foreign tax credit deduction and LIFO are examples of tax code provisions that are available to any industry and are not considered “subsidies.”
Fossil Fuels Expansion: Several recent economic analyses suggest that increased access to domestic onshore and offshore oil and gas reserves, including shale gas, could strongly boost U.S. economic recovery, manufacturing and job growth as well as increasing energy security.
Conclusions: Continued high levels of federal support for the deployment of clean energy and alternative fuel vehicles in the U.S. is unlikely to have a significant impact on reducing GHG concentrations in the atmosphere since the real growth in emissions is coming from developing countries. Instead, government funded basic R&D for renewables and conservation may be a better use of taxpayer dollars than the current suite of tax incentives and direct spending programs whose renewal by policymakers is highly uncertain, especially given the critical situation of the U.S. federal budget.Download Full Testimony