Wednesday, September 15, 2004

More wind: I was wrong

I'm tired of politics for a few minutes so let us talk about wind, taxes, politics and capitalism. A welcome change from politics no?

Link to Wind in Rockford - the previous in the series


I was wrong to endorse the Federal Government subsidy for wind energy production. I was wrong because it is not a subsidy. It is a production tax credit. It is a tax reduction. As a tax reduction the money does not flow to Washington and back with the usual bureaucrats getting their cut.

The money stays with the people who took a risk and produced the wealth. Congress has extended the tax credit for at least two years. As far as I'm concerned it can last until wind electricity unsubsidized matches the cost of other energy sources (about three to five years). Now I admit it is a distortion of the tax system. Like a balloon if you push it in one place it expands in another. The problem here is the size of the government. The less air there is in the balloon the less it expands when squeezed. And as we all know from filling out the forms this year that those guys in Washington really want to squeeze. Not only that but the forms were so complicated that even Einstein couldn't figure out the "simple" forms from his day. It is not just the money (it's the money), it's the agravation.

Now many of you alternative energy enthusiasts believe that government is the answer to the lack of alternative energy in America. That if we only put a gun to people's heads (government) and extracted a few extra billion all will be well, we will be on the road to energy salvation. We are all good people here (I assume) and would never go over to our neighbors house and put a gun to his head and tell him if he doesn't invest in alternative energy in the correct amounts (given in this here table) that you will confiscate his property. But as soon as we put the government in charge of the guns the transaction becomes clean. I don't buy it. But a lot of people do.

Now of course you will tell me that the government has already distorted the market by subsidizing oil,coal, and nuclear. This may be so. So I ask you. Do you like the gun being put to your head to make you support something you don't believe in? The answer here is to remove the subsidies. Limit government to it's constitutional function of keeping the peace, and let the people (who are smarter than the government) go back to making decisions on how best to spend their own money. It may take a while to get to that point but it is way more moral than putting another gun to people's head. If we really believe in living in harmony with the environment we cannot morally achieve that end by coercing people with the power of government guns to achieve our ends.

Nobel Prize winning economist Milton Friedman estimates that if government was limited to it's actual constitutionally limited functions the American economy would be growing at 10% a year. Think of the resources available for wind, fuel cells, solar and all other kinds of good things with out the weight of government on our backs.

Morality aside it won't work. During the last major energy shortage almost thirty years ago a credit was given by the government for the installation of solar hot water heaters. A lot of them were installed in the hopes of saving energy and the certainty of a government tax credit. This lead to a wave of shoddy installations. The solar hot water business has never recovered it's reputation. Too much money chasing too little expertise. Honest growth is organic. You can force it a little. If you try to force it a lot you get death. Too much fertilizer can stunt growth or even kill your plants. The very same is true in an industrial economy.

Now I will grant you that there is enough wind in America to support all it's electrical needs. In theory if we wanted to we could get all our energy from wind in a year. In practice we will be hard pressed to get to 100% in fifty years. We have problems. The first is that it takes time to build industrial capacity. The faster you try to build that capacity the more it costs. If you try to build the capacity too fast the system will collapse. The second is energy storage which I will cover at another time.

From what I know of industrial systems and their rate of growth possibilities I think a feasible rate of growth for wind installations in America is a doubling every year or two until the installed base of wind plants supplies about 2% of America's electrical power. Once the production of wind turbines becomes a significant fraction of GNP the rate needs to slow to a doubling every three or four years. If we try to do much more we will have a lot of wasted production capacity when we have installed near 100% of the useable sites and the demand for them goes down. A lot of people who earned a living will be out of jobs. We want to minimize this.

None of this, however, needs to be explicitly planned. If we keep the government out of the wind market the market will adjust to real conditions instead of manufactured incentives. I still think that even the production tax credit ought to be phased out over time. We don't want to be priming the pump when the flow is sufficient. It is a waste.

M. Simon is an industrial controls designer and Free Market Green

(c) M. Simon - All rights reserved. (originally published around 2002)

BTW Congress has not passed the PTC (Production Tax Credit) this year. Tell them to get on the stick. Wind is a key component of America's energy future.

Link to the House of Reps - contact your Rep.

Link to the Senate - contact your Senators

Link to the White House - contact your President. If he is not your President, don't bother.

1 comment:

James said...


Interested to read your thoughts on using tax credits to encourage wind power.

I suspect we agree on some things:
all subsidies for fossil fuels should be ended

and disagree on others.

I think you'll be interested in my blog:

I hope you contribute to the discussion in the comments sections.