The Environmental Protection Agency finally saw sense on Friday and announced a reduction in the amount of ethanol that refiners are required to blend into gasoline in 2014. Will Congress show equal sense and allow the wind tax credit to expire at the end of 2013?
With budget negotiators striving to meet their December 13 deadline to avoid another government shutdown on January 15, they are looking for suitable tax loopholes to close. One candidate is the wind production credit, which subsidizes more expensive energy and makes electricity more costly for consumers.
According to the Joint Committee on Taxation, the wind production tax credit costs taxpayers $1.54 billion per year. Extending the period under which a wind farm qualifies for the credit by one year would cost $6.1 billion dollars over the next ten years. If the credit were extended five years, the cost would be $18.5 billion over the next ten years.
Both the ethanol mandate and the wind tax credit are remnants of an outdated energy policy that needs to be revised.
Consider ethanol. In the mid-2000s, when Congress imposed renewable fuel mandates, adding ethanol to gasoline was seen as a way to diminish gasoline consumption, reduce oil imports and even curtail tailpipe emissions. For older cars, ethanol cannot replace more than 10 percent of a gallon of gasoline. Automobile manufacturers say that higher levels harm most car engines, although ethanol producers believe otherwise.
In 2012, the subsidy of 45 cents a gallon expired, along with the 54-cent tariff for imported ethanol. But the mandate for the American economy to consume ethanol remained, even though fuel use declined.
In the Energy Independence and Security Act of 2007, signed into law by President George W. Bush, Congress required refiners to use 14 billion gallons of ethanol in 2014. Congress did not know that the declining fuel supply in 2014 would not be able to absorb this amount of ethanol.
On Friday EPA reduced the amount of ethanol required to 13 billion gallons, below levels in 2012 and 2013. The requirement for advanced biofuels was reduced from 3.7 billion gallons to 2.2 billion.
Using ethanol for energy was previously thought to be win-win. Americas corn was supposed to reduce gasoline use and reduce carbon emissions, leaving us less dependent on foreign oil producers.
But ethanol production contributed to increases in the price of food, both in the United States and abroad.
Some scientists believe that the production of ethanol causes more harmful emissions than it prevents. The more ethanol we produce, the more greenhouse gases are generated. Rising corn prices encourage farmers all over the world to transform their land from forests and fallow fields to corn, losing the capture of airborne carbon dioxide performed by trees and shrubs.
With hydrofracturing technology making it possible to access 200 years of natural gas, there is no longer a reason to mandate a less-efficient technology when we produce our own oil. North America will soon be the leading oil producer in the world.
In the same way, there is no need to subsidize wind. When the wind tax credit was put into place in the 1990s, it was thought that the United States needed to be self-sufficient in energy so that the country was not at the economic or geopolitical mercy of the Organization of the Petroleum Exporting Countries.
Also, politicians thought that other countries would also reduce their emissions. But China and India produce more greenhouse gases because they are growing and want to achieve income levels of the West. It makes no sense for America to spend billions on an inefficient energy source to reduce emissions when it will make little change in the global climate.
Energy produced by windmills is more expensive than energy generated by natural gas. The Energy Department calculates that the average levelized cost in dollars per megawatt hour for an advanced combined cycle natural gas plant is $66. For wind, it is $87, a difference of 30 percent.
The tax credit began in 1992 under the Energy Policy Act. It expired in 1999, but has been regularly extended, and was most recently renewed through 2013 on January 2, 2013 in the American Taxpayer Relief Act of 2012. The wind tax credit is worth 2.3 cents per kilowatt hour. The credit generally applies for 10 years and includes any projects where construction begins by December 31, 2013.
In 2012 about 143 wind farms either came online or added capacity which brought the total number of wind farms in the United States to 815. In total, there were over 45,000 turbines operating in the U.S. at the end of 2012, providing 60,007 megawatts of cumulative installed capacity.
About half of Americas wind power capacity is located in California and Texas. Iowa and Illinois are other states with a significant wind industry. In total, over 50 percent of wind capacity is located in five states and over 75 percent is located in just 11 states (mostly in the area of Great Plains and the West).
Even if the wind energy tax credit expired at the end of the year, wind energy would have the advantage of state credits. State tax incentives for wind can be found in Democratic-leaning states such as California, Oregon, and Washington, as well as Republican-leaning states such as Oklahoma and Texas.
Due to the intermittent nature of wind power, traditional sources of power generation, such as coal and natural gas power plants, have to increase or decrease production in a very short time frame to balance the power grid. This "cycling" of traditional power plants decreases the efficiency of the plant and its environmental control equipment.
Cycling disproportionately increases sulfur dioxide, nitrous oxide, and carbon dioxide. The emissions offset by the installation of wind turbines appear to be surpassed by the need to cycle in states such as Colorado and Texas, which maintain renewable energy standards. Robert Bryce, my colleague at the Manhattan Institute, calculates that producing 20 percent of domestic electricity from wind by 2030 would cost $850 billion, but only reduce global carbon emissions by 2 percent.
In Texas, although wind turbines make up 10 percent of the states summer electricity generation capacity, the Electric Reliability Council of Texas in May rated only 8.7 percent of that wind generation capacity as dependable at peak. This means just one percent of available capacity is provided by wind energy during the summer peaks. This capacity has been installed due to tax credits.
EPA has taken a step towards a more sensible energy policy by reducing the amount of ethanol required by refiners. Now Congress should take a second step by allowing the wind tax credit to expire at the end of 2013.
Original Source: http://www.realclearmarkets.com/articles/2013/11/19/will_epa_finally_kill_ethanol_and_wind_energy_100742.html