What is the Percentage of Federal Subsidies Allotted for Wind Power?

“I understand that the federal government in various ways subsidizes energy industries. In the most recent year for which there is data, what percentage of total federal subsidies went to develop solar, wind, geothermal, and new hydro energy sources?” — Glenn Andersen, Orange County, CA

You raise a good question, for it’s one that touches on a subject often misunderstood by the general public. You are correct that the federal government subsidizes the various industries within the energy sector, but that those subsidies don’t just include the renewable sources you list (i.e., solar, geothermal, hydro, and wind). Federal subsidies go to both the nuclear and fossil fuel industries as well. For purposes of this discussion, I’m going to stick to wind energy and leave the other renewable energy sources to the appropriate experts. It may be somewhat natural for people outside the energy industry to assume that because wind and other renewable technologies are newer than those of fossil fuels, they are “subsidized” to help them develop, while fossil fuel and perhaps nuclear technologies have matured to the extent that they can thrive in an unassisted, “free-market” environment, simultaneously serving society and churning out a profit without any financial incentive from government. That assumption could hardly be further from reality. In fact, the truth is practically the exact opposite. In 2003 alone, total federal energy subsidies ranged from $37 billion to $64 billion, according to a study prepared for the National Commission on Energy Policy. Wind energy accounted for less than 1% of that total. Wind power’s primary federal-based incentive is the production tax credit (PTC) — that is, a credit for each kilowatt-hour that a wind energy facility produces for the first 10 years of the facility’s life. As with other energy sources, wind also receives funding for research and development (R&D) to help further advance the technology. Subsidizing fossil fuels is nothing new, to say the least. Energy sources such as oil and natural gas, for example, have received subsidies during the last 75 or so years for such fundamental parts of their business as exploration and extraction. Examples of these include intangible drilling costs and percent depletion allowance, which existed as early as 1916 and are permanent in the tax code. One might also assume that because the fossil fuel industries have been around for over a century, the federal government no longer provides financial assistance for R&D, or at least very little compared to emerging energy sources. One might further guess that wind energy and other renewables, because they are much newer technologies with huge societal benefits, would receive comparatively significant funding. Again, not so. In fiscal year (FY) 2006, fossil fuels got $580 million in R&D funds from the federal government. Nuclear, meanwhile, received $221 million in federal R&D money. The FY 2008 budget calls for nuclear R&D funding of $547 million. Wind energy’s FY 2006 R&D funding: $38.3 million. While the primary federal incentive mechanism for wind power is the PTC, it’s actually quite difficult to get at all of the financial incentives that the fossil fuel industries receive because many of their subsidies are provided in indirect ways that are spread across the stages of production, from resource exploration and extraction, to transportation of fuel, to pollution clean-up, to risk and safety. Again, wind eliminates the need for many of these incentives since it does not require such elements of production. The last point to make is that while many of these fossil fuel incentives have been around for as much as 75 or 80 years — allowing for the respective industries to rely on and plan around them — wind power and other renewables have had to operate in an uncertain business environment, having to sweat out one- and two-year extensions of the PTC. On that level, it’s somewhat remarkable that the industry has grown as much as it has. With all the rhetoric out there about government subsidies — a term that has negative connotations in itself — sometimes the federal assistance that older industries receive is forgotten. It’s easy for the general public to assume that emerging and rapidly improving technologies are receiving some type of federal help, but often forgotten is that with energy being so crucial to society; virtually all segments of the sector are getting some form of subsidies from the federal government. Wind power, meanwhile, is thriving on comparatively little.
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Carl is Editor & Publications Manager at the American Wind Energy Association, where has worked since 2006. At AWEA he oversees AWEA's online and print publications including the Wind Energy Weekly, Windpower Update, and other products. He has worked as a journalist in the energy industry as a staff writer for Public Utilities Fortnightly magazine and in the association sector as senior editor at Association Management magazine. He also has covered the home-building industry, where his areas of greatest interest were sustainable development and "smart growth," and has written articles for numerous other publications as a freelance writer. Carl received his B.A. from James Madison University and spent some time in New Orleans teaching as well as working with homeless youth.

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