Rescinding Clean Power Plan a Positive Step Toward Free Market for Electricity

This article was printed in the December issue POWER magazine

The Environmental Protection Agency (EPA) in early October announced it would rescind yet another signature Obama administration policy: the electricity regulation known as the Clean Power Plan (CPP).

As with President Trump’s Paris climate agreement withdrawal announcement earlier in 2017, the CPP decision has been met with acrimony. But producers and consumers of electricity alike—which is to say, all of us—should rejoice to be rid of this deal, which was rotten even on its own terms.

According to a study by NERA Economic Consulting, under the CPP, 23 states could have experienced retail electricity rate increases of 10% to 20%; seven states could have seen rates jump 20% to 30%; and 10 states could have experienced increases of a whopping 30% or more.

Higher Electricity Costs

The CPP’s overall cost of at least $29 billion annually is three times higher than the cost of EPA’s Mercury and Air Toxics (MATS) rule, which was deemed an EPA overreach by the Supreme Court in 2015. The late Antonin Scalia, writing for the majority in the MATS case, Michigan v. EPA, stated, “It is not rational, never mind ‘appropriate,’ to impose billions of dollars in economic costs in return for a few dollars in health or environmental benefits.” He added, “EPA must consider cost—including cost of compliance—before deciding whether regulation is appropriate and necessary.”

On that standard, one would expect CPP must have presented a wide suite of benefits to outweigh those high costs. But one would be wrong.

Despite the “Clean Power Plan” moniker, the CPP would not have done much to clean up our environment. That’s because its main target wasn’t pollutants such as sulfur oxides, nitrous oxides, or ozone, but rather the perfectly safe carbon dioxide—a gas each of us emits with every breath, and that is necessary and beneficial for plant life.

Given the rhetoric surrounding the CPP, many Americans would be surprised to learn that we have drastically reduced our air pollution over the past half-century. According to EPA, despite our gross domestic product growing by 246% since 1970, we’ve cut our emissions of the six common air pollutants by an average of 70%. So what was the CPP really after?

The purpose of the CPP was to nudge the economy away from carbon-intensive fuel sources and toward others on the premise of anthropogenic global warming. As President Barack Obama expressed on a number of occasions, the plan would, by design, have made the use of coal more expensive in order to coerce utilities to use less-carbon-intensive options. According to estimates produced by the Obama administration’s EPA, the plan would have reduced the electricity sector’s greenhouse-gas emissions approximately 25% below 2005 levels by 2020, and 30% by 2030.

Little Effect on Global Warming

But inconveniently for CPP backers, execution of the plan would have had a negligible effect on global warming.

Climate scientists Pat Michaels and Chip Knappenberger of the Cato Institute used a climate model emulator that was developed with the support of EPA to determine that complete adoption of the CPP would have resulted in a temperature reduction of less than two one-hundredths of a degree Celsius by the year 2100.

That’s not even enough to make you zip your jacket.

The Clean Power Plan’s defenders treat it as if it were a seawall holding back a tide of environmental ills. In reality, “Clean Power Plan” was a misnomer. The plan entailed few environmental benefits, while pushing significant costs onto energy consumers.

Beyond its concrete implications, the plan wasn’t cooperative federalism as EPA claimed, but coercive federalism and a misapplication of the Clean Air Act. The CPP for the first time would have seen EPA regulating not specific sources, or “inside the fence,” but establishing emissions guidelines for entire states. Fortunately, the current administration’s EPA takes a more restrained view on the role of the federal government, which will allow for more local application of knowledge and innovation.

The rescinding of this plan, though, is not the end of the CPP debate. Legal challenges to this EPA decision are sure to follow. What’s more, rescinding the plan does nothing to address its underlying basis: the 2009 EPA Endangerment Finding that requires the agency to take action under the Clean Air Act to curb emissions of carbon dioxide and other greenhouse gases. As long as the Endangerment Finding stands, decarbonization schemes will be on the table.

While not a panacea, the rescinding of the Clean Power Plan is a positive step toward freeing energy producers to supply the indispensable value of electricity to American families and businesses in the most efficient manner possible.

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IEA’s World Energy Outlook 2017 Foresees a Transformation of the Global Energy System

The International Energy Agency (IEA) released its World Energy Outlook 2017 in November, providing global energy market projections through 2040.[i] The outlook assumes that governments will stick to the pledges they made on energy, including India and China’s pledges to move away from fossil fuels and the United States’ to reduce its demand for oil through fuel economy improvements for cars and trucks. Despite the pledges, IEA predicts that global energy demand will increase by 30 percent by 2040, which is equivalent to adding another China and India to today’s global energy demand.[ii] It predicts that the global economy will grow at an annual average rate of 3.4 percent and that population will expand from 7.4 billion today to more than 9 billion in 2040.

The largest contribution to demand growth—almost 30 percent—comes from India, whose share of global energy use increases to 11 percent by 2040, but below its 18 percent share in the expected global population. Southeast Asia’s energy demand is expected to grow at twice the pace of China, resulting in Asia accounting for two-thirds of global energy growth. The Middle East, Africa and Latin America account for the other one-third.

Source: IEA

The IEA sees four major shifts in the global energy system: the rapid deployment and falling costs of clean energy technologies, the growing electrification of energy, the shift to a more services-oriented economy and a cleaner energy mix in China and the resilience of shale gas and tight oil in the United States.

U.S. Tight Oil and Shale Gas

IEA believes that the United States will provide 80 percent of the increase in global oil production in the next ten years, producing 30 percent more than Russia, due to U.S. shale oil production increasing by 8 million barrels a day between 2010 and 2025. That increase “would match the highest sustained period of oil output growth by a single country in the history of oil markets,” rivaling the massive increase by Saudi Arabia between 1966 and 1981. According to the IEA, “A remarkable ability to unlock new resources cost-effectively pushes combined United States oil and gas output to a level 50 percent higher than any other country has ever managed.” The oil price collapse in 2016 left many oil producers unprofitable and provided for a wave of innovation that has improved U.S. shale producers’ productivity and efficiency.[iii]

As a result, the IEA believes that by the late 2020s, the United States will export more oil than it imports. The United States will still import heavy crude oil to support its refineries while exporting light oil.

By 2025, increases in U.S. gas and oil production will turn the country into a net exporter of fossil fuels for the first time since 1948. Hydraulic fracturing technology has made the United States the undisputed leader of oil and gas production worldwide, [iv] transforming the United States from an energy importer into a major player in global markets capable of producing 30 million barrels of oil and gas equivalency per day by 2025, up from 24 million barrels per day today.

IEA also predicts that the United States will become the world’s largest exporter of liquefied natural gas by the mid-2020s,[v] surpassing Qatar, and helping to supply a natural gas demand increase of 45 percent by 2040. The United States is expected to become a net natural gas exporter this year.

IEA’s predictions are derived in part from its calculation of recoverable reserves in the United States, which IEA increased by about 30 percent to 105 billion barrels.[vi]

Coal

Since 2000, world coal-fired power generating capacity has grown by nearly 900 gigawatts, but IEA expects net additions from today to 2040 to be half that amount—400 gigawatts—with many of these plants currently under construction. In India, IEA expects the share of coal in the power mix to drop from three-quarters in 2016 to less than half in 2040. In the absence of large-scale carbon capture and storage, IEA forecasts global coal consumption to be flat.

Renewable Energy

IEA expects renewable sources of energy to meet 40 percent of the increase in primary demand and provide 40 percent of total power generation in 2040, capturing two-thirds of global investment in power plants.

 

IEA assumes that policies continue to support renewable electricity worldwide, increasingly through competitive auctions rather than feed-in tariffs, and the transformation of the power sector is amplified by millions of households, communities and businesses investing directly in distributed solar photovoltaics (PV). China and India are expected to rapidly deploy solar PV, helping to make solar energy the largest source of low-carbon capacity by 2040.

In the European Union (EU), renewable energy accounts for 80 percent of new capacity additions. Wind power in the EU will become the leading source of electricity soon after 2030, due to strong growth of onshore and offshore wind.

According to IEA, growth in renewable energy is not confined to the power sector. IEA expects that the direct use of renewables to provide heat and mobility worldwide will double. In Brazil, IEA sees the share of direct and indirect renewable use in final energy consumption increasing from 39 percent today to 45 percent in 2040, compared with a worldwide increase from 9 percent today to 16 percent in 2040.

China

China’s demand growth slowed markedly from an average of 8 percent annually from 2000 to 2012 to less than 2 percent per year since 2012. IEA expects it to slow to an average of 1 percent per year to 2040 in part due to energy efficiency regulation. By 2040, however, per-capita energy consumption in China is expected to exceed that of the European Union. Without new efficiency measures, China’s end-use consumption in 2040 would be 40 percent higher.

In the IEA projections, China overtakes the United States as the largest oil consumer around 2030 and its net imports reach 13 million barrels per day in 2040. IEA sees the main driving force behind global oil growth, however, shifting to India post 2025 due to stringent fuel-efficiency measures for cars and trucks and a shift in car purchases to electric vehicles in China. China accounts for over 40 percent of global investment in electric vehicles, and has 25 percent of its market electric by 2040.

Installed capacity by technology in China in the NPS. Source: IEA 

IEA sees China accounting for a quarter of the projected increase in global gas demand with projected imports of 280 billion cubic meters in 2040, which is second only to those of the European Union.

In electricity markets, IEA expects one-third of the world’s new wind power and solar PV to be constructed in China and China continues to lead a gradual increase in nuclear energy, overtaking the United States by 2030 to become the largest producer of nuclear-based electricity.

Though still a major consumer of coal, China’s coal use peaked in 2013 and IEA expects it to decrease by almost 15 percent by 2040.

IEA expects China’s carbon dioxide emissions to plateau by 2030 at a level slightly higher than today and then to start to decline. IEA believes China’s carbon dioxide emissions peaked in 2013.

Conclusion

IEA sees the world’s energy system in transformation: China takes a back seat to India in energy growth, the United States becomes a major oil and gas producer and exporter and renewable energy continues to make major in-roads into energy markets driven by government policies.


[i] International Energy Agency, World Energy Outlook 2017, November 2017, http://www.iea.org/weo2017/

[ii] BBC, US leads world in oil and gas production, IEA says, November 14, 2017, http://www.bbc.com/news/business-41988095

[iii] CNN Money, America’s oil and gas output could soar 25% by 2025, November 14, 2017, http://money.cnn.com/2017/11/14/news/economy/us-oil-gas-shale-iea/index.html

[iv] Reuters, U.S. to account for most world oil output growth over 10 years: IEA, November 16, 2017, https://www.reuters.com/article/us-oil-iea-birol/u-s-to-account-for-most-world-oil-output-growth-over-10-years-iea-idUSKBN1DG1XP?il=0

[v] CNN Money, America’s oil and gas output could soar 25% by 2025, November 14, 2017, http://money.cnn.com/2017/11/14/news/economy/us-oil-gas-shale-iea/index.html

[vi] USA Today, Analysis: Why Saudi Arabia should fear U.S. oil dominance, November 18, 2017, https://www.usatoday.com/story/money/energy/2017/11/18/analysis-why-saudi-arabia-should-fear-u-s-oil-dominance/868990001/

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Nature for Nature’s Sake

This article originally appeared at RealClearEnergy.

Last week, the Senate Committee on Energy and Natural Resources debated Alaska Senator Lisa Murkowski’s proposal to establish a competitive energy resource leasing and development program within a sliver of the Arctic National Wildlife Refuge (ANWR) known as the 1002 area. In simple terms, the committee deliberated over the question should we drill.

Rather than asking, “Should we drill?” I submit that we ought to reframe the question and instead ask, “Why is a federal government ban on productive economic activity the status quo?”

My answer is that this prohibitive norm exists because our public discourse has been permeated by the idea that nonhuman life on earth has intrinsic value and that we as human beings have no moral right to affect it for our benefit.

Through this ecocentric lens, any human activity that impacts the nonhuman world is a transgression. And because, to date, it has remained beyond the reach of sustained and transformative human development, Alaska’s ANWR region is an environmental holy grail.

The problem with this view is not that it glorifies nature, as we all appreciate the beauty of the natural world, but that it regards nature as a superior end to human activity, development and flourishing.

I call this perspective nature for nature’s sake.

The advocates of nature for nature’s sake are not to be swayed by appeals to the benefits energy exploration will bring to Americans and energy-starved people around the globe. For them what matters is that the nonhuman world remains beyond our reach. Kristen Miller of the Alaska Wilderness League exemplifies the nature for nature’s sake perspective. “Some places in our nation are simply too special, too sacred to drill,” Miller wrote. “And the Arctic National Wildlife Refuge is one of them. This exhausted debate needs to end, once and for all.”

Miller’s premise—that humanity is a blot on the perfection that is nature—is widely shared, if unacknowledged, and colors our entire debate on the development of energy resources and the development of human civilization more broadly.

With ANWR under consideration, Congress has an opportunity to address the nature for nature’s sake perspective and shift the paradigm from one in which human activity qua human activity is suspect to one in which claimants of environmental degradation bear the burden of proof.

The fact of the matter is that human flourishing requires that we transform the natural world to meet our needs. The outcome of this transformation is longer, healthier, happier lives for all who are left free to benefit from it.

The development of our natural endowment of energy resources is a forerunner of modern civilization. ANWR’s 1002 area, which was designated as a prospective site for exploration when ANWR was established in 1980, is a logical starting point for a campaign to challenge the nature for nature’s sake view.

ANWR is in the uppermost remote corner of northeast Alaska, making it inaccessible to virtually all Americans. It hosts only around a thousand visitors per year, despite being about the size of the state of South Carolina, and is home to a permanent population of only a few hundred in the coastal village of Kaktovik.

Notably, Kaktovik residents have offered longstanding support for development. In testimony submitted to the Senate at a hearing earlier this month, tribal administrator Matthew Rexford offered pointed criticism of the effort to prevent resource development: “We do not approve of efforts to turn our homeland into one giant national park, which literally guarantees us a fate with no economy, no jobs, reduced subsistence and no hope for the future of our people.”

Given this context, what other than a nature for nature’s sake argument explains the prima facie objections by groups like the Alaska Wilderness League to energy development?

ANWR’s 1002 area contains an estimated 7.6 billion barrels of oil according to the U.S. Geological Survey—a sum equal to 20 percent of global annual demand. Perhaps more pivotal than the fruits of drilling in ANWR, however, is the mindset shift we are now positioned to affect.

After decades of a default to ecocentrism, the time is right to reject the nature for nature’s sake view in favor of a default position of anthropocentrism—a central focus on human wellbeing.

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Supporters Admit Wind and Solar Depend on the Tax Code

In some contexts, the proponents of solar and wind power hold them up as the inevitable wave of the future, enjoying amazing breakthroughs that only Luddites could ignore. Yet whenever policymakers tinker with tax credits for renewables, their supporters warn the public that these energy sources are not ready for prime-time. We see this in the recent alarm in the renewables community concerning the Senate tax bill.

As explained in this article from Greentech Media, an obscure provision called the Base Erosion Anti-Abuse Tax (BEAT) threatened the ability of investors in renewables projects to minimize their income taxes as much as the credits initially implied.

For our purposes, the precise details of the BEAT provision are not important. What I do want to highlight is the frank admission of the people quoted in the article:

Tax equity is the renewable energy market’s “core financing tool,” said Keith Martin, a transactional lawyer at Norton Rose Fulbright who specializes in tax and project finance. It makes up 50 to 60 percent of the funds for an average wind farm and 40 to 50 percent of funds for the average solar project. [Bold added.]

Later on the article quotes Greg Wetstone, the CEO of the American Council on Renewable Energy:

On a previously scheduled…webinar on energy storage, Wetstone sounded panicked about the provision, even if the final outcome and impact remains uncertain.

“We normally don’t speak in these kinds of terms, where we talk about collapse of the tax equity market. But unfortunately that’s what we’re looking at,” he said. “Virtually every major tax equity provider would exit the space under these constraints. We’re looking at the end of the principal financing mechanism that has fostered growth of the renewable energy sector since the 1990s.” [Bold added.]

What’s “Tax Equity” Have to Do With Renewable Energy?

As the above excerpts make clear, experts and proponents of renewable energy admit that “tax equity” is the principal tool by which the sector has grown. But what exactly does this phrase mean? We can turn to the explanation given by US PREF, the U.S. Partnership for Renewable Energy Finance. In this paper it explains:

Introduction: Tax credits and the need for tax equity

Federal clean energy policies have made tax equity a critical component in the private-sector financing of clean energy projects. This is because federal tax credits and other tax benefits are among the government’s main incentives to help drive the adoption of domestic clean energy technologies

Tax credits and other tax benefits, however, can only be used by clean energy developers who are profitable enough to actually pay income taxes. Because of this, many developers, whether they are start-ups that have not yet reached profitability or are established power companies that earn most of their income in currently depressed energy markets, have little or no ability to use tax benefits themselves. Hence, they must find investment partners with enough income to benefit from tax credits, accelerated depreciation and similar policies. Investment by such tax equity partners is, in fact, one of the few financing mechanisms currently available to fund renewable energy projects. [Bold added.]

Whenever people like Paul Krugman sing the praises of renewable technology and laugh at those who doubt its imminent takeover of energy markets, we need only repeat the following sentence from the quotation above: “Tax credits and other tax benefits, however, can only be used by clean energy developers who are profitable enough to actually pay income taxes.” 

In other words, provisions such as the Investment Tax Credit (ITC) and Production Tax Credit (PTC)—which are treated differently in the House and Senate bills, as of this writing—cannot be fully claimed by the actual operators of wind and solar facilities, because these operations by themselves aren’t profitable enough. So outside companies can invest in these renewables projects, not because the projects make economic sense on their own terms, but because this gives the investors the ability to claim the associated tax credits.

In this context, then, the BEAT provision—which is intended to prevent big companies from avoiding tax through various “loopholes” and is normally the kind of thing that progressives would typically favor—is ironically threatening to render renewables projects unattractive to multinational banks and other investors. This is one area where the ideology of American progressives leads to cognitive dissonance, because ensuring that these large institutions “pay their fair share” in this case means that they won’t invest in wind or solar.

Conclusion

To be sure, the proponents of wind and solar would retort that coal, oil, and natural gas receive an unfair advantage because of climate change. That is a large discussion which we won’t settle in this blog post, though we’ve written extensively on carbon taxes, and here is my testimony earlier this year on tax policy vis-à-vis energy markets.

In this blog post, I focused on a narrow issue that may surprise many readers: When the chips are down, the supporters of wind and solar openly admit that their industry requires not only special tax breaks, but investment from outside firms who earn enough profit to benefit from the tax breaks. If ever there were an example of an industry where the growth has been driven by the tax code, it is wind and solar in the U.S.

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How to Increase U.S. Carbon Dioxide Emissions: Close U.S. Nuclear Power Plants

Since 2012, carbon dioxide emissions from the electric power sector declined by 10.5 percent, but those emissions reductions could be obliterated if uneconomic nuclear plants are shuttered, according to Bloomberg New Energy Finance. Bloomberg considers 34 of the nation’s 61 plants to be uneconomic because on average it costs $35 a megawatt hour to operate a nuclear plant,[i] while they are getting paid only $20 to $30 a megawatt-hour for their electricity. Almost all of the merchant reactors owned by Exelon Corp., Entergy Corp. and FirstEnergy Corp. are below the break-even point. The losses total about $2.9 billion a year. Merchant nuclear generators selling power into wholesale markets face “financial challenges due to sustained wholesale power price declines and other unfavorable market conditions.”[ii]

Nuclear power plants provide over 55 percent of our carbon-free electricity.[iii] But, due to onerous regulation by the federal government, their total generating costs have increased by over 25 percent since 2002, from $28.27 per megawatt hour to $35.50 per megawatt hour, as described in this IER article.[iv]

Source: Bloomberg

The United States could learn from Germany’s experience. Germany is facing increasing carbon dioxide emissions as it is shuttering its nuclear power plants and replacing them with intermittent renewable technologies (wind and solar) and using coal to back-up the intermittent plants. As a result, its carbon dioxide emissions increased over the past two years.[v] Germany probably cannot meet either its 2020 or its 2030 emissions targets. That is, Germany cannot decrease its carbon dioxide emissions enough in the next two years to reduce its carbon output by 40 percent (compared to its 1990 levels) or 55 percent by 2030. According to the BP Statistical Review, Germany has reduced its carbon dioxide emissions by just 24 percent since 1990 in part to protect 20,000 lignite coal-mining jobs in the eastern part of the country.[vi]

Decommissioning Nuclear Power Plants

According to the Energy Information Administration (EIA), six commercial nuclear reactors in the United States have shuttered since 2013, and an additional eight reactors have announced plans to retire by 2025. As of 2017, 10 commercial nuclear reactors in the United States have been decommissioned, and another 20 U.S. nuclear reactors are currently in different stages of decommissioning. (See chart below.) Decommissioning is a long, expensive and tedious process.[vii]

Source: EIA

To decommission a nuclear power plant, the facility must be deconstructed and the site returned to Greenfield status so that it can be used for other purposes such as housing, farming or industrial use. Onsite nuclear waste must be safely disposed and radioactive material, including nuclear fuel as well as irradiated equipment and buildings, must be removed.

One of two methods can be used to decommission a nuclear plant: decontamination (DECON) or safe storage (SAFSTOR). DECON, the faster method, takes at least seven years and involves removing the fuel and equipment for separate storage and decontamination. SAFSTOR, or deferred dismantling, involves containing and monitoring the reactor and equipment until radiation drops to safe levels, taking up to 50 years for containment followed by up to 10 years for decontamination. The long time period allows some radioactive contamination to decay, reducing the amount of radioactive material that must be disposed of and reducing the cost of decommissioning. The Nuclear Regulatory Commission (NRC) determines when the decommissioning process has been completed and requires a final radiation survey of the site.

The decommissioning process is paid for through a fund that is created during plant construction. About two-thirds of the estimated cost for decommissioning all nuclear reactors in the United States has already been collected. But, additional expenses accrue when reactors are prematurely retired, increasing electric costs for ratepayers.

Some examples of decommissioning costs are: the 619 megawatt Haddam Neck plant in Connecticut, which was shuttered in 1997 and completely decommissioned in 2007 using the DECON method at a cost of $893 million; and the 556 megawatt Kewaunee Nuclear Power Plant in Wisconsin, which was shuttered in 2013 and is being decommissioned using the SAFSTOR method at an estimated cost of almost $1 billion with an expected completion date of 2073.

Conclusion

Nuclear power plants are providing over 55 percent of the carbon-free electricity in the United States, but many of these nuclear plants are having trouble competing as merchant plants in deregulated electricity markets due to onerous regulations imposed by the NRC. As a result, the headway the United States made in reducing carbon dioxide emissions may disappear as more nuclear power plants are shuttered, despite the building of wind and solar plants that operate at less than half the capacity factor of typical nuclear power plants. Finally, decommissioning nuclear plants prematurely can add to ratepayer bills if the full costs of decommissioning have not been collected.

[i] Nuclear Energy Institute, Nuclear Costs in Context, April 2016, http://studylib.net/doc/18310297/nuclear-costs-in-context—nuclear-energy-institute

[ii] Bloomberg, More Than Half of America’s Nuclear Reactors Are Losing Money, June 14, 2017, https://www.bloomberg.com/news/articles/2017-06-14/half-of-america-s-nuclear-power-plants-seen-as-money-losers

[iii] Energy Information Administration, Monthly Energy Review, Table 7.2a, https://www.eia.gov/totalenergy/data/monthly/pdf/sec7_5.pdf

[iv] Institute for Energy Research, Book Review: “Keeping the Lights on at America’s Nuclear Power Plants”, August 7, 2017, https://instituteforenergyresearch.org/analysis/book-review-keeping-lights-americas-nuclear-power-plants/

[v] BP Statistical Review of World Energy 2017, https://www.bp.com/en/global/corporate/energy-economics/statistical-review-of-world-energy/downloads.html

[vi] Foreign Policy, Germany Is a Coal-Burning, Gas-Guzzling Climate Change Hypocrite, November 13, 2017, http://foreignpolicy.com/2017/11/13/germany-is-a-coal-burning-gas-guzzling-climate-change-hypocrite/

[vii] Energy Information Administration, Decommissioning nuclear reactors is a long-term and costly process, November 17, 2017, https://www.eia.gov/todayinenergy/detail.php?id=33792#

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Closing the Wind PTC Loophole

For the past 25 years, the federal government has coddled the wind industry by lavishing upon it billions of dollars’ worth of subsidies. The most prominent of these subsidies is the Production Tax Credit (PTC), which now costs Americans over $5 billion dollars per year. Embroiled in the current tax debate is a set of provisions that would put an end to the wind PTC—a process that was supposed to be put in place by Congress in 2015, but was prevented by a loophole in the IRS guidance.

Protecting Americans from Tax Hikes Act

The Protecting Americans from Tax Hikes Act of 2015 (PATH) included an incremental reduction of the wind PTC of 20 percent each year for wind projects that were started after 2016. However, shortly after this law was passed, the IRS released guidance giving projects started before 2020 four years to be completed and in service before the IRS required details on the project.

This made it easy for projects to claim they started construction in 2016, avoiding the declining PTC altogether and effectively transforming the four-year process of phasing out the wind-PTC into an extension of the program. As Lisa Linowes notes, this created a surge in wind energy production in early 2017, as producers scrambled to be eligible for the wind PTC:

Safe-harbored turbines under contract in early 2017 ballooned to between 30,000 and 70,000 megawatts (MW) with Bloomberg New Energy Finance projecting 38,000 MW of new wind being placed in service by 2020. Without reform, the PTC tax will grow to an additional $32+ billion in the next decade, not including the credits awarded projects already operating.

Tax Bill

The U.S. House tax bill (HR 1) is attempting to rein in the IRS’s guidance through the “Special Rule for Determination of Beginning of Construction.” This rule will clearly define when a wind project was started, therein re-establishing the Congressional intent of PATH to phase-out the wind PTC. HR 1 does not eliminate the IRS’s guidance that allowed the wind PTC to continue; instead, it clarifies PTC eligibility by adding the following provision:

The construction of any facility, modification, improvement, addition, or other property shall not be treated as beginning before any date unless there is a continuous program of construction which begins before such date and ends on the date that such property is placed in service.

Conclusion

For decades, taxpayers have kept wind projects afloat through this complex system of subsidies, yet wind energy remains economically unfeasible. Understandably, special interests are fighting HR 1 because it will put an end to a loophole that has kept billions of taxpayer dollars flowing to their industry. It’s time to end this system of giveaways and allow genuine price signals to guide our selection of electricity generation.

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ANWR: What’s at Stake?

The Arctic National Wildlife Refuge (ANWR) evokes stirring, iconic imagery in our minds: polar bears, glaciers, foraging herds of caribou on wind-swept plains.

The prospect of oil and gas companies entering the region’s landscape leaves many people unsettled and, to no surprise, proposals to open a portion of ANWR for energy exploration have faced fierce opposition.

But we need to recognize that those imagined scenes and our fears of defacing them do not comport with the reality of the territory under consideration. Developing ANWR’s energy resources—by some estimates more than 10 billion barrels of technically-recoverable oil—is actually a relatively low-risk proposal. And it’s one with local and state support.

The area with the potential to be opened to development is known as the 1002 area—so named for the section of the Alaska National Interest Lands Conservation Act that designated it for development consideration upon its passing in 1980. The 1002 area is a roughly 8-percent slice of ANWR, registering just 1.5 million acres out of a total of 19 million. The slice lies along the coastal plain abutting the Arctic Ocean’s Beaufort Sea.

Source: Alaska Department of Natural Resources

Risk vs. Reward

Human activity necessarily entails impacting the non-human world. But the costs of that impact should be evaluated from a humanity-focused framework. Energy development is a high-leverage activity that can continue to have a massive influence on the global population’s standard of living. Analyses of the long-term effect of development invariably show that wealth, as would be created by exploring ANWR, begets health. I’ll describe some of the benefits that will accrue from ANWR exploration below, but first allow me to address and hopefully allay some concerns people might have.

Though risks to the natural world of course exist, modern drilling is not an indubitable threat to the region’s ecology. ANWR’s frigid winter would serve as a safeguard of sorts, reducing the ecological impact of drilling. Arctic areas’ deep freezes, snow, and ice minimize potential impacts to tundra vegetation and conflicts with wildlife during the long winters by allowing the use of ice roads and ice pads on exploration sites, as BP and Conoco have demonstrated in other Arctic regions.

Forty years of drilling just to ANWR’s west in the Prudhoe Bay area show that energy exploration and a flourishing ecology are not mutually exclusive. To the chagrin of alarmists who warn that energy development harms critical wildlife, the population of the Central Arctic Caribou Herd that roams the area grew from 5,000 when drilling began in 1977 to a peak of nearly 70,000 around 2010 when a late-arriving spring caused a halving of the population, according to the Alaska Department of Fish and Game.

Information on drilling techniques and wildlife populations is unlikely to sway the environmentalist fringe whose standard of judgment is our preservation of a supposedly divine natural Earth, but it may give pause to the humanity-focused middle.

The Alaskan Perspective

Despite not being serviced by any permanent roads connecting it with the rest of Alaska, ANWR’s 1002 area includes the village of Kaktovik, which is home to around 250 people.

Source: http://www.groundtruthtrekking.org/

Contrary to what observers may expect given the media’s portrayal of rancor at the Dakota Access Pipeline site in Cannon Ball, North Dakota, the people who live closest to the proposed exploratory areas are strong proponents of liberalizing our economic lockdown of ANWR. Kaktovik local administrator Matthew Rexford testified before the Senate regarding the pending ANWR proposal in early November offering emphatic support. His full written testimony deserves reading, but here is the most poignant excerpt:

The Arctic Iñupiat will not become conservation refugees. We do not approve of efforts to turn our homeland into one giant national park, which literally guarantees us a fate with no economy, no jobs, reduced subsistence and no hope for the future of our people. We are already being impacted by restrictions of access to the federal lands for subsistence purposes – this is really disturbing to us since we have lived here long before there ever was a refuge designated.

As ANWR debates occur, the views of the Iñupiat who call the area home are oftentimes left out. The wishes of the people who live in and around the refuge’s coastal plain frequently are drowned out…My fellow Iñupiat and I firmly believe in a social license to operate, and perhaps no other potential project in the history of America has called for such a blessing from local indigenous peoples more than this one. Attempts to permanently block development in the 1002 – an area intentionally NOT designated as wilderness because of its oil and gas potential – is a slap in the face to our region and its people.

Furthermore, development has the unanimous support of Alaska’s Congressional delegation.

Senior Senator Lisa Murkowski has spearheaded the recent push on Capitol Hill. “Opening the 1002 Area to responsible oil and gas development will create thousands of new jobs, and those jobs will pay the types of wages that support families and put our kids through college,” said Murkowski earlier this month. “It will also generate tens of billions of dollars in revenues over the life of the fields for every level of government.”

Governor Bill Walker is a proponent of development as well. In a January press statement he wrote:

The state will do everything it can to provide the infrastructure needed to responsibly access the 1002 section of ANWR. Alaska has developed the seismic technology needed to focus on the most resource-rich portion of the area, allowing us to limit the footprint of activity in the region. With an oil pipeline that is three-quarters empty and an over $3 billion budget deficit, drilling in the 1002 would fill TAPS and bring much needed revenue to our state coffers.

To anyone familiar with the successes of energy development in other parts of Alaska and the state’s financial history, this unanimous advocacy for more leasing will come as no surprise.

Broad Economic Benefits

For Kaktovik and for the state the benefits are obvious. For the rest of the country the benefits aren’t as readily apparent. Fortunately, we have the December 2015 IER-commissioned study on the economic effects of opening federal lands to energy leasing to give us some insight.


 

According to the study’s findings, opening ANWR would have long-run benefits of nearly $40 billion to our economy and would result in an addition of over 77,000 jobs.

From an economic perspective energy exploration in ANWR is an open-and-shut case. But, of course, it isn’t economics that’s holding us back.

Nature for Nature’s Sake

As I wrote in an op-ed for Real Clear Energy, the economic flourishing of human beings isn’t the chief consideration of ANWR naysayers. They want to preserve nature for nature’s sake alone. The naysayers view humanity as an aspect of the terrestrial ecosystem, but not a superseding concern. Consider the words of the Alaska Wilderness League’s Kristen Miller, “Some places in our nation are simply too special, too sacred to drill—and the Arctic National Wildlife Refuge is one of them. This exhausted debate needs to end, once and for all.”

As the statement makes clear, from the perspective of the Alaska Wilderness League and its fellow travelers human beings simply do not have the moral license to utilize Earth’s natural endowment of resources. This vision is starkly at odds with human advancement.

Conclusion

ANWR is one of nature’s most generous endowments to us. By opening ANWR’s 1002 area to energy exploration, we would put that endowment to its best use. The benefits to our economy would be substantial and the risks are smaller than popularly imagined. The people of Alaska are already behind the idea—and have been for a long while. It’s time for the rest of us to catch up.

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