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Since environmental issues are becoming increasingly salient in the political arena, the subject of alternative energy subsidies warrants some attention. Currently, Congress is deciding whether or not to extend the Production Tax Credit (PTC), a 20-year subsidy which is responsible for most of the growth in the wind sector. The American Wind Energy Association (AWEA) has exerted considerable political pressure on legislators, both state and federal, in order to garner support for the extension of this subsidy. The question we must ask the proponents of further wind subsidies is whether or not these expenditures are creating sustainable energy production at a reasonable price. Despite the fervent advocacy displayed by groups like the AWEA, economic theory and evidence suggest that wind subsidies are a waste of taxpayer money and counterproductive to the aim of providing quality energy at a low cost.
The most basic and perhaps most critical point that must be understood when discussing subsidies of any kind is that the government cannot stimulate one industry without depressing another. When wind projects are granted access to government financing, this means that land, labor, and capital are directed to wind projects. In our world of scarcity, this means that other enterprises must be deprived of these resources. Furthermore, it is likely that these resources will now be allocated toward unproductive uses given that the government, operating outside the profit and loss mechanism of the market, has almost no incentive to be wise or frugal in its expenditures.
The evidence is unsurprisingly supportive of this view. The PTC was adopted in 1992. In 1998, its cost per year was about $5 million. Today it costs about $1 billion annually.
. The wind sector is currently comprised of about 75,000 jobs, 10,000 less than 4 years ago in 2008. Most of these jobs are temporary and relate to the construction of wind turbine plants. Less than 20,000 of these jobs have anything to do with building parts that could actually be used in turbines.
Furthermore, noisy and unsightly wind turbines impose a severely negative externality on those citizens that live within close proximity of them. Not only are these residents forced to put up with noise pollution and a debased landscape, but the property values of residencies in the area inevitably decline as a result. The counterargument is that these negative externalities will be offset by a diminished cost of transporting energy to nearby homes, but this is also misleading because it ignores the fact that energy supply from wind turbines is unreliable and intermittent. The storage and provision of electricity in a wind turbine system is obviously contingent upon wind conditions. This means that at any given time, your home’s power may literally be gone with the wind.
It is time to critically assess the value of wind turbines in this country. After twenty years of subsidies, wind energy has made few substantial progressions and has produced even fewer tangible benefits. This begs the question of whether or not this industry can even function absent government subsidies. The best way to develop alternative energy sources is to allow the market to function unhampered. If there is a real demand for wind energy, then the market will provide it at a lower cost and higher quality than government. Currently, however, it seems that the government is attempting to prop up an industry for which there is no genuine demand.