Ronald Reagan told us more than 50 years ago, “a government bureau is the nearest thing to eternal life we’ll ever see on this earth!” Were he making that observation today, he might also include renewable energy tax breaks.
The solar Investment Tax Credit is scheduled to wind down, which means special interests are pushing for an extension—part of an end-of-the-year grab bag of tax breaks known as a “tax extenders” bill.
A Republican Congress passed, and President George W. Bush signed, the Energy Policy Act of 2005, a wide-ranging effort to increase U.S. energy independence and security at a time of declining oil and natural gas production. Two key components of the law were the solar Investment Tax Credit (ITC) and the Production Tax Credit (PTC) for wind energy.
Both were reauthorized in 2015, again by a Republican Congress, as part of a deal to allow the United States to begin exporting crude oil. But as Texas Rep. Kevin Brady, then chairman to the House Ways and Means Committee, points out, it was supposed to be a one-time extension, which is why he doesn’t support the effort today.
The ITC provides a 30 percent tax credit for both residential and commercial solar projects that began before 2020. The credit decreases to 10 percent beginning in 2022 and only applies to commercial projects.
Now solar energy lobbyists are seeking an extension to the extension—or as Reagan might say, “eternal life.”
But the world of energy has changed significantly since 2005.
To begin with, the United States is no longer under the thumb of other oil and natural gas producing countries.
The fracking boom has made the United States the world’s leading producer of oil and gas. Today, cleaner-burning natural gas, which releases about half the carbon dioxide of coal, is so abundant and cheap that it’s becoming the energy source of choice for U.S. electricity generation.
In short, energy security in no longer the pressing concern it once was.
In addition, the renewable energy industry is sending mixed messages. We frequently see news stories claiming the cost of producing both solar and wind power has become very competitive with fossil fuels.
For example, Business Insider summarized a 2018 report from financial adviser Lazard claiming, “The cost of producing solar power is rapidly declining: It now costs $50 to produce one megawatt-hour of solar power, according to a new analysis. Coal, on the other hand, costs $102 per megawatt-hour to produce.”
Or how about this recent story in Forbes, “The cost of renewable energy has tumbled even further over the past year, to the point where almost every source of green energy can now compete on cost with oil, coal and gas-fired power plants, according to new data released today.”
If true, then why should taxpayers continue subsidizing solar power?
The stated reason for initially subsidizing wind and solar power was so they could reach economies of scale where they could be competitive with fossil fuels. And frequent news stories seem to imply “mission accomplished.”
But when government subsidies for renewables are threatened, we hear a different message: that solar and wind power would likely collapse without subsidies.
Maybe we should ask those who benefit most from such subsidies.
As billionaire investor Warren Buffet said in 2014, “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.”
Well, at least now we know.
But there is another reason to not extend the solar tax credit. The wind energy industry, which taxpayers have been subsidizing since 1992, will demand parity.
While most of the solar ITC is set to go away in 2022, commercial solar projects will still receive a 10 percent tax credit—in perpetuity. Wind energy’s PTC ends this year. If Congress extends the solar ITC, the wind energy lobby will want its credit extended too, essentially doubling the cost to taxpayers.
While Ronald Reagan may be correct that federal bureaus have eternal life, let’s make sure that doesn’t apply to federal tax subsidies. Let the solar ITC and wind PTC pass away. It may upset billionaire Buffet, but taxpayers will be much better off.