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Public Statements

Subcommittees Review Effectiveness of Renewable Energy Tax Subsidies

Press Release

By:
Date:
Location: Washington, DC

The Subcommittee on Investigations and Oversight and the Subcommittee on Energy and Environment today held a joint hearing to examine recently expired, current, and proposed renewable energy tax preferences, and their impact on the commercial application of renewable energy technologies.

"A lot of attention has been paid to the failures of Solyndra, Beacon Power, and Ecotality which received questionable support from DOE, and rightfully so. What many don't realize, however, is that these direct expenditures from DOE are a mere drop-in-the-bucket compared to what these technologies received from tax provisions," said Investigations and Oversight Subcommittee Chairman Paul Broun (R-GA). "In 2011 alone, tax preferences for all energy technologies cost $20.5 billion, far exceeding the $3.2 billion in direct support from DOE. Unfortunately, these significantly greater expenditures have not shared the same level of oversight."

Energy and Environment Subcommittee Chairman Andy Harris (R-MD) discussed how these tax incentives interfere in energy markets and drive-up consumer costs. "As this debate continues, the free market in energy is providing a cost-saving alternative in the form of a technology-driven revolution in natural gas production that can deliver clean, reliable baseload electricity to consumers at lower prices." Harris continued, "The contrast between these two paths is stark--one is a centrally-planned, politically-driven path requiring taxpayers and ratepayers pick up the tab for more expensive energy; the other allows technology and the free market to determine the best and most affordable mix of electricity sources without burdening taxpayers and driving up already huge federal deficits."

One major energy tax subsidy, Section 1603 of the American Recovery and Reinvestment Act of 2009, otherwise known as the Stimulus bill, provides companies lump-sum cash payments of up to 30 percent of a project's cost. However, a recent Wall Street Journal report found that the program resulted in far fewer jobs than expected. The report noted that, collectively, applicants stated in program applications that their projects would create more than 100,000 jobs. However, the Journal's analysis of $4.3 billion of wind projects--representing about 40 percent of total program funding--estimated that only 7,200 jobs were created at the peak of construction, and that those projects now employ only 300 people.

Dr. Margo Thorning, Senior Vice President and Chief Economist at the American Council for Capital Formation, discussed how job estimates are presented. "Anecdotal estimates of job creation in renewable energy suggest that the government's projections of expected new jobs may be significantly overstated and that the cost of each green job is high," Dr. Thorning said. "The cost to taxpayers to create each short term job under the Recovery Act's 1603 program ranges from about $63,000 to over $91,000. The cost of permanent renewable energy jobs (a total of about 5,000 per year for the next 20 or so years) ranges from over $81,000 to over $88,000."

Vice President of Deployment and Industrial Partnerships at the National Renewable Energy Laboratory (NREL), Dr. Michael Pacheco, emphasized the limitations of an NREL analysis touted by the Department of Energy as proof that the Section 1603 program benefits the economy. "It is important to note that the NREL study provides estimates of direct and indirect jobs related to facility construction and operation, but does not attempt to estimate the overall economic impact produced by those jobs," Pacheco said. "No attempt was made to estimate if or how many jobs were lost or displaced in other sectors by the installation of these RE projects. In addition, the study does not attempt to quantify which projects were completed directly because of the 1603 Program, nor does it address relative effectiveness of these or other tax incentives."

Dr. Benjamin Zycher, a Visiting Scholar at the American Enterprise Institute, testified that "the actual employment effect of expanded renewable subsidies is likely to be negative because of the inverse aggregate relationship between electricity costs and employment, because of the adverse employment effects of the taxes needed to finance the subsidies, and because of the adverse employment effects of an economy smaller than otherwise would be the case. In short: The purported economic and social benefits of policy support for renewables are illusory."

Chairman Broun concluded that "Ultimately, our goal should be to ensure an efficient "all of the above' strategy that respects market decisions and does not pile on more debt that our children and grandchildren will have to pay for in years to come."

The following witnesses testified today before the Subcommittees:
Panel I
Dr. Molly F. Sherlock, Specialist in Public Finance, Congressional Research Service
Mr. John Parcell, Acting Deputy Tax Legislative Counsel U.S. Department of the Treasury
Dr. Michael Pacheco, Vice President, Deployment and Industrial Partnerships, National Renewable Energy Laboratory
Panel II
Mr. Rhone Resch, President and CEO, Solar Energy Industries Association
Mr. Terry Royer, CEO, Winergy Drive Systems Corporation
Mr. Steven Erby, Vice President, Monolith Solar Associates, LLC
Dr. Benjamin Zycher, Visiting Scholar, American Enterprise Institute
Dr. Margo Thorning, Senior Vice President and Chief Economist, American Council for Capital Formation
Ms. Lisa Linowes, Executive Director, Industrial Wind Action Group


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