Subsidized Renewable Energy Sources Not Delivering ROI to Taxpayers

(Washington, April 19, 2012) – Renewable energy sources, including the wind, solar, biofuels and ethanol industries, receive the lion’s share of tax code subsidies, yet do not yield the economic benefit commensurate with the cost.  ACCF Senior Vice President and Chief Economist Margo Thorning testified today on the commercial application of renewable energy technology and on U.S. economic recovery before the House Subcommittees on Energy and Environment and Investigations and Oversight, Committee on Science, Space and Technology.

“These are not ‘infant industries.’ Renewable energy sources have been unable to stand on their own in the marketplace and have been underwritten by the government for decades,” Thorning said.  “Their high costs and inefficiencies make them exactly the types of subsidized programs that should be considered for cutback by the government to address our mounting deficit and sluggish economy”

Thorning cited a Congressional Research Services report stating 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.  She further noted that some renewable electricity enjoys negative tax rates: solar thermal’s effective tax rate is -245 % and wind power’s is -164%.

Despite their substantial tax advantages, data from Department of Energy’s Energy Information Administration 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 14 times more expensive than is advanced natural gas fired combined cycle generation.

Thorning also noted that the taxpayer cost for much-touted “green jobs” is also 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.

“Given the minimal economic and environmental return to taxpayers, a more appropriate use of subsidies for renewables may be to limit them to basic R&D”.  Thorning concluded.  “The cost savings could be used for reducing the federal deficit or for government programs whose benefits exceed the costs.

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Founded in 1973, The American Council for Capital Formation (www.accf.org) is a nonprofit, nonpartisan economic policy organization dedicated to the advocacy of tax, energy, environmental and regulatory policies that encourage saving and investment.

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