The renewable energy industry — which includes wind power, solar, biofuels made from corn or other organic substances — exists because of government mandates and taxpayer subsidies.
Don’t believe me? Listen to mega-investor Warren Buffet. He explained in 2014 why his company, Berkshire Hathaway, invests in wind energy: “For example, on wind energy, we get a tax credit if we build a lot of wind farms. That’s the only reason to build them. They don’t make sense without the tax credit.”
Notice Buffet didn’t say the taxpayer subsidies are a “good” reason for investing in wind farms, but “the only” reason.
The Financial Times notes, “Berkshire’s Energy unit also receives tax credits for renewable power generation — reporting $258 [million] of wind energy tax credits in 2014, and $913 [million] of investment tax credits in 2012 and 2013 for opening new solar power plants.”
So U.S. taxpayers shelled out at least $1.17 billion in tax breaks for billionaire Buffet in just two years. Is this what Democrats mean when they complain about tax breaks for the rich?
The House Republican tax reform plan begins clawing back some of those subsidies, including the one receiving the most attention — the per-vehicle tax credit of up to $7,500 for electric cars.
Defenders of the credit warn that eliminating it will likely mean the end of U.S. plug-in electric vehicle sales — except, perhaps, for Tesla. They also note that some states mandate that electric vehicles make up a certain percentage of car sales, and eliminating the credit will make it harder to reach those state-based goals.
But the tax credit was supposed to be temporary, to offset high R&D and start-up costs and promote early sales, until the electric vehicle market got on its feet. Besides, the primary users of that credit are high earners who can afford electric vehicles, most of which are significantly more expensive than cars and trucks with fossil fuel-burning engines. That means that middle-class workers are subsidizing high-income workers’ driving preferences.
The wind industry also takes a hit in the House tax bill by reducing the Production Tax Credit from 2.4 cents per-kilowatt hour to 1.5 cents for new projects. And solar energy loses a 30 percent Investment Tax Credit — which under current law is scheduled to drop to 10 percent — for large solar projects beginning construction after 2027.
News reports also assert that the House Republicans’ tax reform proposal maintains tax breaks for the oil and gas industry. And the Congressional Budget Office does claim that the U.S. provided about $18.4 billion in subsidies and tax breaks to the fossil fuel and renewable energy industries in 2016, with 75 percent going to renewable fuels and 25 percent to fossil fuels. But that claim is misleading.
The International Energy Agency does not include the U.S. among countries that subsidize fossil fuels. Neither does the Financial Times energy subsidy assessment, though the Financial Times does claim the U.S. is the second largest subsidizer of renewable energy after Germany. So what gives?
Tax breaks for fossil fuels are generally applied to standard operating expenses such as exploration and depletion costs. Those are costs of doing business in the oil and gas industry and should be normal business write-offs.
Fortunately, Republicans also propose “immediate expensing” for all businesses, which means companies could write off capital expenses the year the money is spent rather than depreciating the asset over several years. That one change could make moot most of the supposed “tax breaks” for the oil and gas industry.
Scaling back or ending renewable energy and electric vehicle tax breaks, as the House Republican plan does, would come closer to putting renewable energy on a level playing field with fossil fuels, while saving the government money.
The Senate Republican plan, by contrast, generally retains the current tax breaks.
Governments shouldn’t be in the business of picking winners and losers, which Washington has done all too often, especially during the Obama years — and especially in the renewable energy space. Companies need to compete without taxpayer subsidies, letting consumers determine which companies — and industries — thrive and which don’t survive.