Federal Production Tax Credit Research Articles

State Policy and Lobbying in a Federal System: Evidence from the Production Tax Credit for Renewable Energy, 1998–2012

AbstractState policies shape firms’ incentives to lobby in the United States, but the existing lobbying literature mostly ignores these incentives. Using lobbying records for all electric utilities in the United States from 1998 to 2012, we examine how state policies affect federal lobbying by both proponents and opponents of federal support for the renewable energy policy. Our theory predicts that supportive state policies reduce the returns to lobbying by both proponents and opponents. Empirically, we show that when the federal production tax credit for renewable energy is about to expire, electric utilities from states without renewable portfolio standards become more likely to lobby than those from states with these policies. Because the timing of the expiration of the production tax credit is quasi-random, these findings carry a causal interpretation. Using text analysis techniques, we also show that the lobbying efforts are focused on energy and environmental issues while lobbying on unrelated topics remains unaffected.

Politics in the U.S. energy transition: Case studies of solar, wind, biofuels and electric vehicles policy

We examine the politics of US state and federal policy supporting wind and solar in the electricity sector and biofuels and electric vehicles in the transportation sector. For each technology, we provide two policy case studies: the federal Production Tax Credit (PTC) and state Renewable Portfolio Standards (RPS) for wind; state Net Energy Metering (NEM) and the federal investment tax credit (ITC) for solar; federal excise tax incentives and the Renewable Fuel Standard (RFS) for biofuels; and California's Zero Emission Vehicle (ZEV) mandate and federal tax incentives for electric vehicles. Each case study traces the enactment and later revision of the policy, typically over a period of twenty-five years. We use these eight longitudinal case studies to identify common patterns in the politics of US renewable energy policy. Although electricity and transportation involve different actors and technologies, we find similar patterns across these sectors: immature technology is underestimated or misunderstood; large energy bills provide windows of opportunity for enactment; once enacted, policies are extended incrementally; there is increasing politicization as mature technology threatens incumbents.

Tall towers, long blades and manifest destiny: The migration of land-based wind from the Great Plains to the thirteen colonies

Until recently, it was not economically feasible to install wind turbines in many locations, including in large portions of the states that border the Atlantic Ocean in the United States, due to the low wind speeds. Newer designs allow turbines to be deployed at higher hub heights (>100m) where wind speeds are greater, and come with longer blades, allowing them to produce significantly more energy at lower wind speeds. We undertake a case study, using rural Sussex County, Delaware, US, to study their economic feasibility. We take an interdisciplinary approach, move beyond theory and general models, and consider micro-scale wind resources (the primary driver of revenue); local site geology, which influences project feasibility and foundation cost; local transmission constraints and expenses related to transmission and connection to the existing electrical grid; local values attributable to the environmental attributes of wind power; operation and maintenance costs (including insurance and replacement parts); land use and zoning considerations, including setbacks from roads, structures and airports; taxes; and rents/royalties. We find the base case levelized cost of energy (LCOE) to be ∼$70/MWh (before accounting for the federal production tax credit) based on a 25year-life of a wind turbine. Sensitivity analyses are undertaken around project life, project finance, the discount rate, and wind speed.

The Incentives of Wind Power Production and Integration in US Policy

This paper analyzes the impact of the federal Production Tax Credit on the development of wind energy in the US. Following an analysis of the incentives these policies produce for wind energy generation and integration, this paper finds that, although the Production Tax Credit has proven effective at promoting some level of wind power development, the effectiveness of the Production Tax Credit varies by region and by itself is unlikely to achieve the deep levels of wind power penetration desired by some policymakers and the U.S. Department of Energy.

Lessons of Wind Policies in Texas

Since the late 1990s, Texas has experienced more wind generator investment than any other U.S. state. It now has the most installed wind capacity of any state, and wind power accounts for a larger share of total generation in Texas than in most other states. Favorable wind resources and the relative ease of siting large projects have contributed to Texas’s prominence in wind investment and generation. Numerous policies have also played important roles, such as the federal tax credit for wind generation, the state’s renewable portfolio standard (“RPS”), and a regulatory environment conducive to new investment in the electric power sector. With nearly fifteen years of hindsight, the Authors derive lessons from the major federal and state policies that have helped wind generation in Texas. The Authors conduct this retrospective analysis at a time when many other states have ambitious renewable energy resource requirements; for example, California requires that renewables account for 33% of generation by 2020.5 At the same time, extensive debate over federal policy continues, including whether to continue or renew subsidies to renewables. The lessons from the Texas experience can help guide these future policy decisions. To provide background, the next Section summarizes aggregate trends in investment and generation in Texas and considers these trends in the national context. The Authors also briefly describe the federal production tax credit (“PTC”), which has been claimed for many recent wind power projects, and the Texas RPS. Texas also has a “green power” market that creates market-based incentives for investment in renewables; however, the Authors are not aware of any detailed analysis of this program, so the Authors focus on the RPS. The Authors discussion includes the policies that encourage renewables investment directly and reduce pollution emissions, leaving aside other policy developments such as the deregulation of the electricity sector that occurred during the same time period. The following Section looks at the economics of wind power, and distinguishes the market and environmental values of new wind generators. Market value arises from displaced generation and investment resulting from the new wind generator, and the environmental value from the avoided pollution emissions from fossil-fuel-fired generators. Because the Authors focus on policies that aim to reduce pollution emissions, the Authors do not include other environmental issues such as the effects of the policies on bird populations. In the main Section, the Authors draw three policy lessons from the discussion of market and environmental values. While several other articles have analyzed wind policy in Texas, the Authors’ focus is distinct in its attempt to draw important lessons for state and federal efforts to promote renewables. Briefly, the three lessons are as follows: In Texas, the environmental benefits of wind power arise primarily from displaced natural gas generation and to a lesser extent from displaced coal generation. Although existing Texas policies have promoted substantial wind investment, other policies would likely reduce pollution emissions at lower costs. Coordinating policies for renewables and grid infrastructure can greatly lower the cost of reducing emissions. The final Section offers a few concluding remarks for state and federal policy.

Renewable Energy—Finance: Financing US Renewable Energy Projects in a Post‐Subsidy World

AbstractThe federal renewable energy production tax credit (PTC) was created in 1992 when Congress enacted the Energy Policy Act of 1992. The creation of the PTC for renewable energy generating projects signaled the birth of the modern renewable energy industry in the United States. In the years since its birth, the industry has grown in fits and starts, seeing the creation of the investment tax credit (ITC) in 2005 and no less than six extensions of the PTC.

Designing Renewable Electricity Policies to Reduce Emissions

A variety of renewable electricity policies to promote investment in wind, solar, and other types of renewable generators exist across the United States. The federal renewable energy investment tax credit, the federal renewable energy production tax credit, and state renewable portfolio standards are among the most notable. Whether the benefits of promoting new technology and reducing pollution emissions from the power sector justify these policies’ costs has been the subject of considerable debate. We argue in this paper that the debate is misguided because it does not consider two important interactions between renewable electricity generators and the rest of the power system. First, the value of electricity from a renewable generators depends on the generation and investment it displaces. Second, a large increase in renewable generation can reduce electricity prices, increasing consumption and emissions from fossil generators, and offsetting some of the environmental benefits of the policies. Two policy conclusions follow. First, existing renewable electricity policies can be redesigned to promote investment in the highest-value generators, which can greatly reduce the cost of achieving a given emissions reduction. Second, subsidies financed out of general tax revenue reduce emissions less than subsidies financed by charges to electricity consumers.

Wind Generation Patterns and the Economics of Wind Subsidies

An analysis supports the conclusion that there is no economic rationale for continued subsidization of wind generation. At the federal level, direct subsidies, such as the federal production tax credit, should not be continued. State-level subsidies, whether feed-in tariffs established by state regulators or statutory RPS mandates, further exacerbate market distortions and raise electricity prices, again to the detriment of consumers.

Wind power development in the United States

This paper analyzes the drivers of wind power development in the United States, focusing on government renewable energy incentives and access to the electricity grid. The effects of wind capacity, electricity transmission line coverage and grid regulation, as well as state and federal subsidies from 1998 to 2007 are estimated via random effects Tobit, Probit, and ordinary least squares instrumental variables regression. The results indicate that the federal production tax credit, state-level sales tax credit and production incentives play an important role in promoting wind power. In addition, higher wind power penetration levels can be achieved by bringing more parts of the electricity transmission grid under independent system operator regulation. This paper concludes that state and federal government policies play a significant role in wind power development both by providing financial support and by improving physical and procedural access to the electricity grid.

The Interaction Effects on Wind Power Development in the United States by Federal Production Tax Credit and States' Renewable Portfolio Standard

The Interaction Effects on Wind Power Development in the United States by Federal Production Tax Credit and States' Renewable Portfolio Standard

Impact of public policy uncertainty on renewable energy investment: Wind power and the production tax credit

It is generally understood that the pattern of repeated expiration and short-term renewal of the federal production tax credit (PTC) causes a boom–bust cycle in wind power plant investment in the US. This on–off pattern is detrimental to the wind industry, since ramp-up and ramp-down costs are high, and players are deterred from making long-term investments. It is often assumed that the severe downturn in investment during “off” years implies that wind power is unviable without the PTC. This assumption turns out to be unsubstantiated: this paper demonstrates that it is not the absence of the PTC that causes the investment downturn during “off” years, but rather the uncertainty over its return. Specifically, it is the dynamic of power purchase agreement (PPA) negotiations in the face of PTC renewal uncertainty that drives investment volatility. With contract negotiations prevalent in the renewable energy industry, this finding suggests that reducing uncertainty is a crucial component of effective renewable energy policy. The PTC as currently structured is not the only means, existing or potential, for encouraging wind power investment. Using data from a survey of energy professionals, various policy instruments are compared in terms of their perceived stability for supporting long-term investment.

Introduction

Introduction

Investment in Energy Infrastructure and the Tax Code

Executive Summary Federal tax policy provides a broad array of incentives for energy investment. I review those policies and construct estimates of marginal effective tax rates for different energy capital investments as of 2007. Effective tax rates vary widely across investment classes. I then consider investment in wind generation capital and regress investment against a user cost of capital measure along with other controls. I find that wind investment is strongly responsive to changes in tax policy. On the basis of the coefficient estimates, the elasticity of investment with respect to the user cost of capital is in the range of −1 to −2. I also demonstrate that the federal production tax credit plays a key role in driving wind investment over the past 18 years.

Impact of Policy Uncertainty on Renewable Energy Investment: Wind Power and PTC

It is generally understood that the pattern of repeated expiration and short-term renewal of the federal production tax credit (PTC) causes a boom-bust cycle in wind power plant investment in the U.S. This on-off pattern is detrimental to the wind industry, since ramp-up and ramp-down costs are high, and players are deterred from making long-term investments. It is widely assumed that the severe downturn in investment during off years implies that wind power is unviable without the PTC. This assumption turns out to be unsubstantiated: this paper demonstrates that it is not the absence of the PTC that causes the investment downturn during off years, but rather the uncertainty over its return. Specifically, it is the dynamic of power purchase agreement (PPA) negotiations in the face of PTC renewal uncertainty that drives investment volatility. With contract negotiations prevalent in the renewable energy industry, this finding suggests that reducing regulatory uncertainty is a crucial component of effective renewable energy policy. The PTC as currently structured is not the only means, existing or potential, for encouraging wind power investment. Using data from a survey of energy professionals, various alternative policy incentives are considered and compared in terms of their perceived reliability for supporting long-term investment.

Using the Federal Production Tax Credit to Build a Durable Market for Wind Power in the United States

As Congress continues to struggle to develop a well-balanced national energy policy, it may wish to consider both a longer-term extension of the production tax credit for renewable electricity sources, as well as certain revisions to the design and structure of that credit.

Grain and cellulosic ethanol: History, economics, and energy policy

The United States (US) and Brazil have been the two leading producers of fuel ethanol since the 1970s. National policies have supported the production and use of ethanol from corn and sugarcane. US support in particular has included exemption from federal gasoline excise taxes, whole or partial exemption from road use (sales) taxes in nine states, a federal production tax credit, and a federal blender's credit. In the last decade the subsidization of grain-based ethanol has been increasingly criticized as economically inefficient and of questionable social benefit. In addition, much greater production of ethanol from corn may conflict with food production needs. A promising development is the acceleration of the technical readiness of cellulosic alcohol fuels, which can be produced from the woody parts of trees and plants, perennial grasses, or residues. This technology is now being commercialized and has greater long-term potential than grain ethanol. Cellulosic ethanol is projected to be much more cost-effective, environmentally beneficial, and have a greater energy output to input ratio than grain ethanol. The technology is being developed in North America, Brazil, Japan and Europe. In this paper, we will review the historical evolution of US federal and state energy policy support for and the currently attractive economics of the production and use of ethanol from biomass. The various energy and economic policies will be reviewed and assessed for their potential effects on cellulosic ethanol development relative to gasoline in the US.

Are Renewables Portfolio Standards Cost-Effective Emission Abatement Policy?

Renewables portfolio standards (RPS) could be an important policy instrument for 3P and 4P control. We examine the costs of renewable power, accounting for the federal production tax credit, the market value of a renewable credit, and the value of producing electricity without emissions of SO2, NOx, mercury, and CO2. We focus on Texas, which has a large RPS and is the largest U.S. electricity producer and one of the largest emitters of pollutants and CO2. We estimate the private and social costs of wind generation in an RPS compared with the current cost of fossil generation, accounting for the pollution and CO2 emissions. We find that society paid about 5.7 cent/kWh more for wind power, counting the additional generation, transmission, intermittency, and other costs. The higher cost includes credits amounting to 1.1 cent/kWh in reduced SO2, NOx, and Hg emissions. These pollution reductions and lower CO2 emissions could be attained at about the same cost using pulverized coal (PC) or natural gas combined cycle (NGCC) plants with carbon capture and sequestration (CCS); the reductions could be obtained more cheaply with an integrated coal gasification combined cycle (IGCC) plant with CCS.