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Another Free-Money Report

Posted By David Kreutzer, Ph.D. On December 12, 2011 @ 5:15 pm In Featured | Comments Disabled

Because the concept of opportunity cost is fundamental to all of economics, it is covered in the first chapter of every principles-of-economics textbook. Opportunity cost tells us what we give up when make decisions on consumption and production. There are no free lunches. In spite of the universal agreement on the importance of opportunity cost, there is nearly universal omission of the concept in studies purporting to show job creation from regulation, subsidies, and mandates.

The recent study [1] for the American Wind Energy Association (AWEA) follows this disturbing pattern. Hoping to keep the wind-energy industry on artificial life support—via a production tax credit that gives wind-farm operators a tax subsidy equivalent to nearly half the cost of the wholesale electricity they sell—AWEA promotes a study whose job projections are based on a survey of the 20 largest wind-turbine/component manufacturers and whose methodology completely ignores opportunity cost.

That is, the survey asks these hardly disinterested agents whether they would reduce employment without the tax credit and then ignores the impact of the tax subsidy on other parts of the economy. Because giving resources to the wind-energy industry means that the resources have to be taxed from some other part of the economy, the AWEA study does not estimate the overall employment impact.

The lost economic activity and jobs caused by the transfer of resources to the wind-energy industry is the opportunity cost of the production tax credit. Aand it is ignored in the AWEA report.

Beyond the production tax credit, the wind-energy industry benefits from other mandates and regulations that require utilities to buy renewable energy, even at non-competitive prices. Starting with data from the U.S. Energy Information Administration, we estimated [2] that the cost of wind energy will be 80 percent to 113 percent more costly than conventionally generated electricity.

Driving up energy costs is not a job-creating policy. According to the AWEA study, wind-energy installation will drop 75 percent without the production tax credit. If this is true, it simply proves that wind energy is too expensive compared to conventional energy. A study that looks at only one side of the equation may hide this excess cost, but no amount of subsidies, mandates, or other schemes can erase it.


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URL to article: http://blog.heritage.org/2011/12/12/another-free-money-report/

URLs in this post:

[1] recent study: http://www.awea.org/learnabout/publications/reports/upload/AWEA-PTC-study-12-2011.pdf

[2] we estimated: http://www.heritage.org/research/reports/2010/05/a-renewable-electricity-standard-what-it-will-really-cost-americans

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