Twenty years ago, it would have been difficult to find a single wind turbine looming over the hills and plains of the United States.
But now that rapid expansion is about to come to a halt, or at least slow down dramatically. Wind power, after all, still relies on government support — particularly the federal production tax credit, which can lower the cost of building a turbine by as much as one-third. And unless Congress acts, that tax credit is set to expire at the end of 2012. If that happens, the industry will have to downsize.
To get a sense of the wind boom over the past two decades — and how Congress and the states have nurtured it — check out this new chart from the U.S. Energy Information Administration. It shows the policies that have led to boom and bust cycles over the years. (PTC stands for production tax credit, which subsidizes new wind generation by 2.2 cents per kilowatt-hour):
Let's narrate this chart a bit. During the 1990s and early '00s, the wind industry grew erratically. Whenever Congress enacted the production tax credit, wind turbines would go up. Whenever Congress allowed the tax credit to expire, as in 1999, 2001 and 2003, the industry would slump.
That all changed starting around 2004. At that point, Congress stopped allowing the tax credit to expire. Just as significantly, more than 29 states passed local mandates that required electric utilities to get a certain portion of their power from renewable energy. The result? All that policy uncertainty subsided and wind power began booming, as technology improved and costs fell.
True, it wasn't all steady growth. The financial crisis slowed down wind power's rise a bit, as investment dried up. (Though Congress addressed this in the 2009 stimulus by converting tax credits to direct grants.) And, in recent years, cheap natural gas has hurt wind's competitiveness. Still, the chart shows a fairly clear link: When policymakers offer up subsidies and allow them to stand, wind power starts growing rapidly.
If the current pace of installation kept up, the United States would be getting 20 percent of its electricity from wind within a few decades, according to Lawrence Berkeley National Laboratory. But that's now looking unlikely. If Congress allows the tax credit to expire, wind generation will "fall off a cliff" next year. (It won't disappear entirely, thanks to all those state-level policies.)
So should the federal tax credit be renewed? That's the big debate. Supporters argue that wind power deserves federal subsidies, since it's a low-carbon source of energy and thus offers climate-change and air pollution benefits to the public that aren't reflected in its price tag. Opponents argue that the subsidy is too costly for an electricity source that is intermittent and hard to integrate into the power grid. (See Continental Economics' Jonathan Lesser, who makes an extensive case against wind.)
But there's also a middle option, offered up in a recent paper (pdf) from researchers at the Brookings Institution and the Breakthrough Institute. The authors argue that Congress shouldn't just let all support for wind power expire at once. But endless subsidies aren't the right answer, either. After all, wind power keeps getting cheaper and more efficient. At some point, new turbines may not need any subsidies to compete against coal or natural gas (especially if the country had a carbon tax). So, the authors argue, Congress should design renewable-energy subsidies that slowly disappear as wind power becomes self-sufficient.
“The goal shouldn’t be to simply subsidize industries endlessly," report co-author Jesse Jenkins told me earlier this year. "It should be to improve innovation so that the subsidies can phase out over time.” That means investing in more R&D and rewarding technological improvements.
It's a provocative idea. But for now, Congress doesn't seem much interested. The Senate has passed a proposal for a one-year extension of the tax credit that will cost $12.1 billion over ten years.* Many Republicans, by contrast, argue that the credit should simply expire. Which means that the wind industry is either looking at another spike or another crash — but not a smooth path in between.
*Correction: This extension will cost $1.2 billion per year over ten years, not $1.2 billion.
— More colorful charts on the rise of the wind industry.
— My colleague Juliet Eilperin reports that some conservative groups are now working to repeal state-level renewable energy mandates as well.
— A longer discussion of how to design renewable subsidies that phase out over time and reward innovation.