Analying Production Tax Credits
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Ten-year cost of Production Tax Credit in Texas estimated to be $4.1 billion; its negative impact on reliability will cost consumers billions more
AUSTIN -- Texas Public Policy Foundation analysts Bill Peacock and Josiah Neeley today released a new report, The Cost of the Production Tax Credit and Renewable Energy Subsidies in Texas.
The Production Tax Credit (PTC), a federal tax credit which subsidizes the production of renewable energy, is set to expire at the end of 2012.
“The continuation of the Production Tax Credit will cause more disruption in electricity markets and impose higher costs on consumers and taxpayers,” said Bill Peacock, the Foundation’s Vice President of Research and Director of the Center for Economic Freedom. “The negative consequences of the Production Tax Credit are even more apparent in Texas, as it has more wind-generated electricity than any other state.”
According to the report, the PTC’s current annual cost in Texas alone is approximately $567 million. If continued, the cost of the PTC in Texas would run about $4.1 billion through the 10 years ending in 2015.
The PTC is only one of the subsidies available to renewable energy producers in Texas. Others available in Texas include Renewable Energy Credits (RECs) under the state’s Renewable Portfolio Standard, federal grants under the 2009 stimulus bill, and access to transmission through the Competitive Renewable Energy Zone (CREZ) program. Altogether, renewable energy subsidies in Texas, including PTC, will cost taxpayers and consumers about $12.9 billion over the same period.
Despite the mature nature of the wind industry, the cost of renewable subsidies in Texas is on the rise as are the costs imposed on the Texas electricity market.
“Texas is undergoing a major debate over whether price signals are adequate to maintain resource adequacy,” said Josiah Neeley, policy analyst for the Foundation’s Armstrong Center for Energy and the Environment. “A significant portion of the problem with price signals can be directly attributed to the subsidies for wind generation, particularly the Production Tax Credit.”
“Electric competition is working in Texas; rather, it is government interference with the market led by the Production Tax Credit that is causing today’s concerns regarding reliability. Congress should allow the Production Tax Credit to expire. If not, consumers, taxpayers, and Texas’ world-class energy-only electricity market will pay the price,” said Peacock.
The Texas Public Policy Foundation is a non-profit free-market research institute based in Austin. www.TexasPolicy.com