Case Overview, Wind Energy Tax Credit

This document provides background information and summarizes the debate over a tax credit for companies producing wind energy. The links to the left will lead you to public documents that we have found.


          Ever since the energy crisis of the 1970s there have been repeated calls for the United States to rely more on renewable energy sources and less on fossil fuels. Whenever oil prices go up or instability emerges in the Middle East, America's dependence on foreign supplies becomes glaringly obvious. Periodically policymakers have created tax incentives to try to spur investment in or consumption of renewable energy. One example is a tax credit that was created for installing solar panels; another is the recently enacted credit for purchasing hybrid cars.
          The tax credit for wind energy was intended to encourage investment in wind farms. Such "farms" are groups of windmills that use the motion of the blades propelled by the wind to move energy through turbines onto power lines. These power lines are connected to central power plants that, in turn, distribute the energy to residential and commercial developers. In principle, everyone is in favor of wind energy since it is clean energy. Sometimes those abutting proposed wind farms will object but this has not proven to be a major obstacle.
          Those in the industry have convinced Congress that investment must be subsidized if more wind farms are to be developed. Proponents point to substantial progress in making wind farms viable. Said one industry lobbyist, "since the tax credit was enacted in 1992, wind energy has gone from 22 cents to 4 ½ cents a kilowatt hour. It's a clear case of government-private partnership actually working, and making it not just reasonable but feasible." The most recent renewal of the tax credit was for only two years, leaving the industry frustrated as it believed investors need a longer-term commitment before they're willing to put up capital. In the 107th Congress an effort was initiated to get Congress to renew again, this time for five years.
          Led by the American Wind Energy Association and individual power companies, a coalition of supporters approached the tax writing committees to try to find a suitable vehicle. For its part the Bush administration was much more interested in promoting exploration and development of oil and gas fields. Its omnibus energy bill included various incentives for these traditional energy producers and lobbied Congress hard to open up the Arctic National Wildlife Refuge (ANWR) on that state's northern tier for oil exploration. The administration gave lip service support to renewable energy but there was no major push for these clean fuels because they remain small sources in our overall energy picture.
          Nevertheless, the administration was not working against renewable energy and proponents searched for a suitable bill that it's congressional supporters could use to move a new wind energy credit through the House and Senate. The proposed wind energy incentive would cost $1 billion over five years, not a trivial amount of money. Said one lobbyist, "Opposition is people that want the some pot of money, that's where you get into problems with anything. The Congress is like a sand box with some . . . toys in it and there's not quite enough toys to go around to all the kids." The wind energy industry ultimately succeeded in getting a five year tax credit put into the omnibus energy bill, a major victory. The energy bill failed, however, to clear the Congress. Thus is was back to work for the wind energy lobbyists at the beginning of the 108th Congress.