This op-ed originally appeared in National Journal on December 18, 2012.
[divider]
Back in October, the Wall Street Journal ‘s Ben Casselman and Russell Gold reported that “the sudden abundance of cheap energy is pushing down manufacturing costs and giving companies reason to stay in the U.S.” Cheap energy means more jobs, means lower utility and transportation costs, and that results in lower consumer prices all around.
But cheap energy is anathema to people like Energy Secretary Stephen Chu and MSNBC’s on-air ethicist Chris Hayes, who hosts the appropriately titled program, “Up!” That’s where Hayes thinks energy prices should go, and so does CNBC financial correspondent Dan Dicker, who says, “You would want the prices to go up a lot because it would drive the next stage towards renewables, and make that at least cost-effective.”
Even the U.S. Navy is “on board” with wind energy, authorizing a 100-turbine wind farm just 11 miles from its Kingsville (TX) Naval Air Station even though research to determine ways to protect aircraft from the radar-disrupting turbines has not yet begun. Turbine blades create “clutter” that can obscure radar coverage over wind farms and can “shadow” low-flying aircraft to prevent radar operators from determining the flight pattern, speed and altitude and even the airplane’s identity.
CFACT, by contrast, supports an all-of-the-above energy policy that seeks to get the most reliable, most affordable energy to the most people in both the U.S. and the world’s poorest nations. Cheap energy saves lives — through access to health care, education, communications, transportation, and a host of other networks that more prosperous peoples today take for granted.
On the surface, the $22 per megawatt-hour wind power production tax credit seems to be a way to lower consumer prices for this very expensive energy. Yet this incentive, which expires on December 31, instead provides a false sense of economy that encourages more high-cost wind farms, resulting in still higher utility bills that cripple the budgets of working class families and the elderly.
The brand-new proposal for a six-year phase-out of the PTC, put forward by the American Wind Power Association, is clearly a calculated response to try to win over the few votes needed to keep the greenbacks coming. But anyone who believes the AWPA will be satisfied with just six years is just as wise as the guy who “knew” that unemployment checks would always stop after 13 weeks.
Around the world, other nations are coping with the same issues. There is a hue and cry in India to restore expired incentives for wind power that once included an accelerated depreciation tax benefit and a generation-based incentive that boosted wind farm project returns. What this means is that wind is still not economically viable without such a crutch.
Australia, which today gets 75% of its energy from coal, is providing heavy financial support to “clean technologies,” which rely on mining operations for turbine construction and operation, for transmission lines, and for backup conventional generation when the wind either dies down or blows too hard. Erica Rex reported in The Independent that a growing number of British politicians now consider wind turbines to be “as welcome as nettles,” noting that the turbines are blamed for migraines, tinnitus, heart attacks and hearing loss (among other ailments).
Benjamin Zycher of the American Enterprise Institute, writing in The Hill, explained that the PTC enables wind power producers to profit from under-pricing their output by paying system operators to take their power when demand is low at night and in winter. This in turn reduces the efficiency of conventional generating facilities who must therefore also under-price their outputs when engineering constraints make it difficult or dangerous to cycle up and down. Simply put, these incentives skew the real market and hurt everybody else, particularly residential consumers.
Now there is some good news, and that provides ample encouragement for using some federal dollars to foster basic research that over time could lead to much lower costs for alternative energy. General Electric Co. says that “materials science breakthroughs in wind turbine blade technology could drive down the costs of building wind farms,” but this research is still in its early stages. Then again, electric cars were going to be the next big thing a century ago.
The bottom line is that the U.S. today has a $16 trillion official national debt that is growing nearly exponentially. Precious federal dollars ought not be wasted to promote production of high-cost energy; any such outlays should be for basic research, not political skewing (and skewering) of the market. Instead, the U.S. would be wise to encourage expanded production of low-cost energy from conventional sources, especially on federal lands, so as to enrich the federal treasury through lease payments, increased tax revenues from both primary and spinoff jobs creation, and lower payouts for social services due to lower unemployment and greater self-reliance.