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Tuesday, May 29, 2012

Response to Sen. Mark Warner on Wind Energy Tax Breaks

Ladies & Gentlemen:  The following is for your information.
 
May 28, 2012

The Honorable Mark R. Warner
United States Senate
Washington, DC 20510-4606

Dear Senator Warner:

I have great respect for your knowledge of information technology.   But, with all due respect, sir, your May 24, 2012, response to my request that you oppose extension of the wind Production Tax Credit (PTC) shows a serious lack of understanding of wind energy, energy markets, and energy R&D.

The people of Virginia are fortunate that the Menendez bill (S.2204) failed.  Your support for that bill was ill-advised and contrary to the interests of Virginia’s taxpayers and energy users.

You appear not to understand that the wind PTC, a tax shelter, results in shifting tax burden from “wind farm” owners and developers to ordinary tax payers and/or results in more debt that will have to be paid by our children and grandchildren.   Furthermore, “wind Farms” are being built primarily because of the Production Tax Credit, NOT because of their true environmental, energy or economic benefits.

Frankly, the following statement in your letter is rather naive if you are referring to “investing” our tax dollars:

“In order to retain its competitive advantage in the global economy and ensure a promising future for our citizens, America must invest in research to develop new technologies and efficiency improvements across all sources of energy.”

Are you not aware that from 1973 to 2010 the US Department of Energy (DOE) and its predecessors spent over $148 billion (2010$) of our tax dollars on “energy R&D”[1] and has yet to produce a single significant commercially viable energy technology?

Clearly, technological advances will ultimately be the means to assure that the US has an adequate supply of energy at reasonable prices but there is NO reason to assume that such advances are dependent on or result from actions by the US government.  In fact, the federal government’s massive spending on “energy R&D” during the past 38 years has failed because it is based on three fundamentally flawed assumptions; specifically that:

1.     More R&D spending will inevitably overcome technological hurdles to whatever technology is being pursued.
2.     Economics of scale will overcome economic hurdles for selected energy technologies.
3.     Governments are capable of picking technology winners.

Please check the past 38 years of federal energy policies.  You will see that successive administrations, beginning with Nixon (except Reagan) and Congress have picked dozens of what were claimed to be “winning” energy technologies.  These were showered with a variety of tax breaks and subsidies, but none has become commercially viable (i.e., without tax breaks and subsidies). 

Wind energy is merely one of the latest.  Wind has received billions in tax breaks and subsidies during the past 20 years but remains a very high cost source of electricity that is low in value.  The electricity that is produced is low in true value because it is intermittent, volatile, unreliable and most likely to be produced when least needed – not on hot weekday afternoons in July or August when electricity demand is high.  There is no evidence that land-based wind energy will become commercially viable and the prospects for off-shore wind energy are even poorer.

New energy technologies that are commercially viable have been and are being developed in the private sector, not by federal or state governments.  Advances in oil and gas exploration and production technologies are a good example.

Your “All of the above” fallacy.

Your letter refers to “an ‘all of the above’ energy portfolio.”  By adopting that catchy phrase (like President Obama, VA Governor McDonnell, and numerous other politicians), you illustrate another fallacy in your views on energy.

As a practical matter, political leaders interested in defending the interests of citizens, taxpayers and consumers should base their views on energy on a careful evaluation of the true benefits and the true costs of energy from various sources.  To do otherwise is inefficient and wastes money.

In fact, “all of the above” is NOT an a real energy policy.  Instead, it appears to be a campaign contribution policy with the apparent goal of not offending lobbyists and potential campaign contributors from any of the various energy industries.  Such a “policy” may keep campaign contributions flowing but it shouldn't be presented as something that is in the public interest.

Your “dependence on foreign oil” fallacy.

Your letter asserts, incorrectly, that “Domestically generated wind power can … [help] reduce dependence on foreign oil…”  This simply isn't true.  Wind turbines are built solely to produce electricity.  Virtually none (about 1%) of the electricity produced in the US is produced by oil-fired generating units.  Many of the units making up this small percentage are “peaking” units (turbine or internal combustion) that are used primarily on hot days when electricity demand reaches very high levels – a time when wind turbines tend to produce little or no electricity.

Your “jobs” fallacy.

You seem to suggest that extending subsidies for “wind farms” would create jobs.  In fact, “wind farms” create few jobs.  About 75% of the cost of a “wind farm” is for the turbine, towers, and blades, a very large share of which are imported.  Even those turbines assembled in the US make heavy use of components that are imported.   Jobs resulting from construction of “wind farms” are short term jobs (often 6-months or less) and very few permanent jobs are created.

Investing an amount equal to the cost of a “wind farm” in other electric generating sources (particularly including natural gas) would result in more jobs – and more reliable electricity.

Who benefits from wind energy tax breaks and subsidies?

In fact, the principal beneficiaries of the generous federal and state tax breaks and subsidies for wind energy are primarily the “wind farm” owners and developers.  They are the big winners. They have avoided billions in taxes and shifted their tax burden to ordinary taxpayers and to our children and grandchildren who will bear the debt that the Congress is loading on them.

Landowners leasing land for the placement of wind turbines may be small winners – at least in the short term since they receive additional income (but not in the long term if they bear the cost of decommissioning the turbines at the end of their useful life).  Neighbors of these landowners pay a heavy penalty in the form of noise, scenic impairment, and other adverse environmental impacts.

Electric customers in states where “wind farms” are being built receive some benefit since tax breaks and subsidies help offset the high cost that they would otherwise have to pay.

This last point should be of particular interest to you since there are no “wind farms” in Virginia.  Therefore, as a practical matter, extending the PTC would mean that your constituents – the taxpayers of Virginia, their children and grandchildren – would be bearing the costs but receiving no benefits.  Instead, the benefits go elsewhere, to “wind farm” owners and developers, landowners leasing land, and electric customers in other states.

Current expiration date for the wind PTC.

Your letter indicates that the wind PTC expires at the end of 2013.  In fact, under current law, the expiration date is December 31, 2012.

In conclusion, Senator Warner, the views expressed in your May 24, 2012, letter might have appeared to make sense 5-7 years ago when the false and exaggerated benefit claims made by the wind industry and other wind advocates had not yet been fully exposed.  However, there is now ample evidence demonstrating that those claims are not accurate or true. 

Please reconsider your position on the wind PTC and other tax breaks and subsidies for wind energy before the next attempt is made to push those measures through the Senate later this year.

Sincerely,

Glenn R. Schleede
18220 Turnberry Drive
Round Hill, VA 20141


[1] As defined in the President’s budget and historical budget tables.

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