Oil and Coal Subsidies/incentives Are Baked Into Pseudo US Energy “Market”

A recent blog featured in the Forum Opinions page erroneously stated the Production Tax Credit for wind energy is (as he states it in the article) a “Completely perverse 23 cents kwh”.  This is simply not true, the PTC before 12-31-16 was 0.023 or 2.3 cents/kwh and now it’s 0.0184 or 1.8 cents/kwh.
Here is that information from the Energy.gov site:
Applying the inflation-adjustment factor for the 2016 calendar year, the production tax credit amount is as follows:

  • $0.023/kWh for wind, closed-loop biomass, geothermal energy resources, and solar systems that have not claimed the Investment Tax Credit
  • $0.012/kWh for open-loop biomass, landfill gas, municipal solid waste, qualified hydroelectric, and marine and hydrokinetic energy resources

The tax credit is phased down for wind facilities and expires for other technologies commencing construction after December 31, 2016. The phase-down for wind facilities is described as a percentage reduction in the tax credit amount described above:

  • For wind facilities commencing construction in 2017, the PTC amount is reduced by 20%
  • For wind facilities commencing construction in 2018, the PTC amount is reduced by 40%
  • For wind facilities commencing construction in 2019, the PTC amount is reduced by 60%

Note that the exact amount of the production tax credit for the tax years 2017-2019 will depend on the inflation-adjustment factor used by the IRS in the respective tax years.
~End Chart ~
The misinformation campaigns about our current energy “Markets” such as the PTC being 23 cents is having a detrimental effect to renewable energy projects in North Dakota. Recently Xcel Energy announced they wanted to install another 300 mgw of wind production in South Dakota. They have plans for more projects that combine natural gas peaking with wind generation. Instead of throwing up obstacles, a welcoming atmosphere for these projects would help North Dakotans benefit by becoming a renewable energy leader.
The PTC subsidies are being reduced even though they are a fraction of those coal and oil subsidies that have been developed and ingrained in the skewed energy “Market” for over a century. Reducing the PTC while wind, solar, and geothermal are produced at scale at a lower cost per unit of energy produced could be a good strategy as long as we also recognize and reduce subsidies ingrained in our country’s policies for fossil fuels.
Here are some research statistics from Oil Change International in an article by Vox writer David Roberts:

fossil fuel subsidies(OSI)

You probably can’t read that text, so here are the top six:

  • Intangible drilling oil & gas deduction ($2.3 billion)
  • Excess of percentage over cost depletion ($1.5 billion)
  • Master Limited Partnerships tax exemption ($1.6 billion)
  • Last-in, first-out (LIFO) accounting ($1.7 billion)
  • Lost royalties from onshore and offshore drilling ($1.2 billion)
  • Low-cost leasing of coal-production in the Powder River Basin ($963 million)

(I listed six because that sixth one is the biggie for coal.)

As subsidies age, they start to look less like subsidies. They start looking like fixed features of the landscape, like mountains or rivers, rather than choices we are making. They just look like the status quo.

How does this compare to renewable energy subsidies? In terms of permanent tax expenditures, fossil fuels beat renewables by a 7-1 margin:

energy subsidies(OCI)

(The primary federal tax supports for renewable energy — the investment and production tax credits, respectively — are not permanent. They are set to phase out over the next five years, and are politically vulnerable in the meantime. But if you include them, Stephen Kretzmann of OCI confirmed for me over email, permanent fossil tax breaks still win, at $7.4 billion to $5.6 billion.)

If you ask people in fossil fuel industries, their support staff in conservative think tanks, or fossil-state politicians, they will tell you why these fossil fuel production subsidies are necessary. It’s always been this way. They’re more than paid back by tax revenue. Other industries get them too. (For the record: More than half the $20 billion is available to fossil fuels alone). They create jobs. They’re important for national security. Tax expenditures aren’t subsidies at all, if you think about it. Etc.

Speaking of rent-seeking, here’s a final fun factoid from OCI:

In the 2015-2016 election cycle, oil, gas, and coal companies spent $354 million in campaign contributions and lobbying and received $29.4 billion in federal subsidies in total over those same years — an 8,200% return on investment.

Not bad.

                                                                       ~ End Article ~
Our country’s energy policies need to evolve beyond a system based on a century of oil and coal production in what has been and continues to be a skewed “market” that counter productively extends our country’s dependence on one time harvest fossil fuels. This while countries around the world and some states are embracing technology and cleaner renewable energy, storage, along with more efficient and resilient distributed energy systems now being developed close to Moores Law speed. There are already far more people employed in the solar industry field than in the coal industry and the renewable energy job market continues to grow. 
North Dakota is not moving forward if our state leaders and Public Service Commission continue to focus their efforts and our public money on extending our dependence and production of last century’s fuels with projects like the Allam Cycle that the developer can’t find banks to loan money for perhaps because banks recognize coal is a finite resource and not viable as a energy of the future.
Instead we could convert older coal plants to burn available natural gas that is currently being flared. This type of plant is more adaptive and interacts better with intermittent wind and solar generation. This would be a cleaner transitional step while we focus on helping develop energy storage systems and distributed energy.
A solid path forward is embracing technology and helping develop and use cleaner renewable energy and storage solutions that will help make North Dakota an energy leader into the future.

1 reply
  1. Dane W Gamble
    Dane W Gamble says:

    As a unitholder in MLPs, I receive a K-1 indicating my share of income subject to federal tax treatment. As the entity is a partnership, not a corporation, there naturally would be no corporate tax levied; it is accounted as a pass through entity.

    Reply

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