December 27, 2020
The Washington Favor Factory never sleeps. Further proof of that fact arrived last week when Congress slapped together and passed two measures: a $1.4 trillion must-pass government spending bill and a $900 billion Covid-relief bill.
The 5,593-page bill, which may be vetoed by lame-duck President Donald Trump, is the longest piece of legislation ever passed by Congress and is packed with a panoply of carve-outs and tax favors. Which industries got the biggest favors inserted into legislation that The Hill columnist Joe Concha called “the swampiest thing ever”?
Without a doubt, it was the solar- and wind-energy sectors.
According to a December 21 estimate from the Joint Committee on Taxation, the extension of the solar sector’s investment tax credit (ITC) will cost the American treasury another $7 billion between now and 2030. (The ITC may also be used for offshore wind projects.) The extension of the wind industry’s production tax credit (PTC) — which like the ITC was supposed to be phased out — will cost another $1.7 billion. Those billions will be added to the $27 billion in ITC credits that were already designated for the solar sector and $34 billion in PTC that will be collected by Big Wind between now and 2029. (Those last two numbers are from the Treasury Department.)
Given the tens of billions of dollars that are being lavished on solar, wind, and other politically popular energy programs — tax credits for fuel cells, carbon capture and sequestration, and “two-wheeled plug-in electric vehicles” also got extensions in the budget bill — I decided to seek an answer to a simple question: which energy technology gets the most in federal tax incentives?
The answer, by two country miles, is solar energy.
In 2018, the American solar industry got roughly 250 times as much in federal tax incentives as the nuclear sector, when compared by the amount of energy produced. Coming in a close second is the wind sector, which got about 160 times as much as nuclear.
Before going further, let me be clear: I’m pro-solar. I have 8.5 kilowatts of solar panels on my place here in Austin. (I got three different subsidies for putting them on my roof.) Solar is politically popular and it will continue to grow at a rapid clip in the years ahead.
But it’s also clear that the vast disparity in subsidies being given to solar and wind versus the amount being given to nuclear energy reflects the mismatch between the rhetoric about the possible threat of climate change and the reality of how Congress doles out money to politically connected industries. The world’s top climatologists have agreed that we will need more nuclear energy – at the gigawatt and terawatt scale — if we are going to have any hope of limiting greenhouse gas emissions. It’s also clear that we must also preserve and extend the operating lives of existing nuclear reactors. That’s not happening. Instead, reactors are being shuttered and their output is being replaced by natural gas-fired generators.
Even more galling: For years, the solar and wind sectors have claimed that they no longer need subsidies because they are cost-competitive with hydrocarbons. And yet the ITC and PTC continue to be extended. Those extensions are diverting billions of dollars from the federal treasury and into the coffers of foreign and domestic companies who are wrapping themselves in the cloak of climate change to justify their unending attachment to the federal teet.
Let’s look at the numbers. Last year, the Congressional Research Service called “The Value of Energy Tax Incentives for Different Types of Energy Resources,” which calculated tax incentives for 2017 and 2018. The CRS found that tax credits for “solar and the production tax credit for wind have increased substantially in recent years,” and that in absolute terms, wind and solar energy are getting far more in federal tax incentives than hydrocarbons or nuclear. In 2018, tax credits for renewables, including the PTC and ITC, totaled $9.8 billion while the hydrocarbon sector collected about $3.2 billion. Meanwhile, the tax credits given to the nuclear sector, which produces more than half of America’s zero-carbon electricity totaled just $100 million.
Energy production data for 2018 — which I converted into exajoules (EJ) — was obtained from the BP Statistical Review. According to BP, in 2018, domestic production of hydrocarbons — coal, oil, and natural gas — totaled about 68 EJ. Nuclear production totaled about 7.6 EJ. Solar production was about 0.84 EJ and wind production was about 2.46 EJ.
Those numbers clearly show that in absolute terms renewables are getting far more in federal tax incentives than hydrocarbons or nuclear. But the real story emerges when comparing the dollars per EJ produced. That comparison shows that the subsidies given to hydrocarbons and nuclear are dwarfed by the amount of federal taxpayer cash that is being ladled on the wind and solar sectors.
In 2018, as shown in the graphic, America’s nuclear sector received about $13.1 million in tax incentives per EJ while the solar sector soaked up $3.3 billion per EJ – or 253 times the amount given to nuclear. The wind sector got $2 billion per EJ, or about 158 times as much as nuclear.
Even the unloved and unfashionable hydrocarbon sector (who loves coal, oil, or natural gas these days?) got more than the nuclear crowd. According to the CRS data, in 2018, hydrocarbon producers got tax incentives of about $47 million per EJ, or about four times as much per EJ as the nuclear sector.
To be clear, these calculations are not comprehensive. They don’t count mandates or subsidies that renewables may be getting from state or local governments. Nor do they include tax credits that the nuclear sector is getting in states like New York and Illinois, costs associated with air pollution, or any calculations for the social cost of carbon. What these numbers — and last week’s passage of the budget bill — do show is this: the federal tax system has been drastically tilted in favor of two land-hungry, incurably intermittent sources of electricity that cannot, will not, be able to provide the vast amounts of energy and power that the American economy demands at prices consumers can afford.
“There’s no justification for these massive subsidies,” says Lisa Linowes, an outspoken critic of federal subsidies for renewables, and the president of the Wildlife, Energy and Community Coalition, a recently formed group that focuses on the human, land-use, and wildlife issues associated with energy development. “Whatever the wind and solar industries ask for from the Democrats, they get,” Linowes told me, “and Republicans aren’t willing to even question the billions of dollars that are being spent.”
Linowes points out that in December 2015, Congress agreed on a five-year phase-out of the PTC. After that deal was struck, Sen. Charles Grassley, the Iowa Republican and noted deficit hawk, said “As the father of the first wind-energy tax credit in 1992, I can say that the tax credit was never meant to be permanent.”
But if the 5,000-page bill that was passed by both the House and the Senate is any indication, it’s clear that the renewable-energy tax credits are becoming permanent. The PTC is the single most expensive energy subsidy in the federal tax code and will cost taxpayers about $40 billion from 2018 to 2027. The ITC and PTC are also distorting prices in the electricity market and that distortion is hurting the nuclear sector as well as generators who burn natural gas.
Congress is allocating yet more money for solar and wind even though America’s nuclear sector is producing about twice as much carbon-free electricity every year as wind and solar, combined. Despite its importance to America’s climate goals, the nuclear sector is foundering. Numerous reactors have closed over the past few years and more will be shuttered in the months and years ahead. In New York, the Unit Three reactor at Indian Point will be shuttered in April. In Illinois, Exelon EXC +0.3% is planning to shutter two nuclear plants. In California, the Diablo Canyon nuclear plant is slated for closure in 2025.
Alas, rather than tackle the thorny challenge of keeping America’s existing reactors open and operating, Congress has decided to, in Concha’s words, pass “another spending bill stuffed with pork.” It remains to be seen what will happen with the spending bill. As of Sunday morning, Trump, who spent the holiday weekend playing golf, hadn’t indicated whether he would veto it. But whatever happens next, it appears that tax credits for renewable energy are one of the most-renewable elements of the Washington Favor Factory.
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