Tag Archives: Wind power

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WichitaLiberty.TV: Schools and the nature of competition and cooperation, Wind power and taxes

In this episode of WichitaLiberty.TV: A Kansas newspaper editorial is terribly confused about schools and the nature of competition in markets. Then, we already knew that the wind power industry in Kansas enjoys tax credits and mandates. Now we learn that the industry largely escapes paying property taxes. Episode 38, broadcast April 6, 2014. View below, or click here to view at YouTube.

Kansas wind turbines

Rural Kansans’ billion-dollar subsidy of wind farms

From Kansas Policy Institute.

Rural Kansans’ Billion-Dollar Subsidy of Wind Farms

By Dave Trabert

Kansas wind turbinesNo, I’m not talking about any federal tax subsidies or mandates to buy high-cost wind energy that have forced higher taxes and electricity prices on every citizen. This billion-dollar gift comes in the form of local property tax exemptions. In some ways, this handout is even more insidious because the cost is borne by a relatively small number of Kansas homeowners and employers in the rural counties where wind farms exist.

Under current law, renewable energy producers enjoy a lifetime exemption from property taxes in Kansas. I testified last week in support of SB 435 to limit their property tax exemption to ten years.  As shown on an attachment to my testimony, the Kansas Legislative Research Department says there is a $108.4 million annual difference between the small fees paid in lieu of taxes and the taxes that would be due if taxed at the regular rates within each county. So technically, the legislation would only “limit” the property tax gift to $1.1 billion over ten years on existing wind farms; more tax gifts would still be done on new wind farms and other renewable energy facilities.

And while renewable energy producers were basically getting a free ride, property taxes on everyone else where going through the roof!

Giving property tax exemptions to private companies, regardless of the rationale, only increases everyone else’s property tax. Local government spending is not curtailed to absorb the exemption; cities and counties just raise taxes on everyone else. We encouraged the Legislature to also require that local mill rates be reduced proportionately if these property tax gifts are limited to ten years so that the new revenue from renewable energy producers’ property tax is used to reduce the burden on everyone else. (You should have seen the stink-eye this produced from the tax-and-spend crowd.)

Predictably, wind farm lobbyists lined up to protest that this legislation would increase their property taxes and send a bad message to the wind industry. Even local governments are opposed to taking away the exemption — after all, they can get their money from everyone else and take credit for bringing jobs and investment to their communities. They refuse to acknowledge that any economic benefit enjoyed by the green energy industry (and their own political benefit) comes out of the pockets of everyone else.

P.S. Remember this billion-dollar gift the next time you’re angered by cronyism in Washington, DC. Bad players in Washington often learn their craft at the state level; fending off bad policy at the state level has many long term benefits.

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WichitaLiberty.TV: For whose benefit are elections, school employment, wind power, unions, unemployment

Wichita City HallIn this episode of WichitaLiberty.TV: The controversy over the timing of city and school board elections provides an insight into government. Then: Can a candidate for governor’s claims about Kansas school employment be believed? Wind power is expensive electricity, very expensive. A Wichita auto dealer pushes back against union protests. Finally, what is the real rate of unemployment in America? Episode 36, broadcast March 23, 2014. View below, or click here to view at YouTube.

polar-bear-400

Are you worried about global warming?

polar-bear-400To the extent that global temperatures are rising, and the extent that mankind is the cause, we should be concerned about global warming. Climate change I meant to say, please excuse me.

It’s no wonder that the term global warming has been replaced by climate change. As the following two charts show, the models that are in common use by climate scientists have predicted rising temperatures, but actual observations of temperatures have not conformed to predictions. Temperatures have been level in recent years.

Here’s a simplified chart of the temperatures predicted by climate scientists compared to actual temperatures. A more complicated version follows. Click on either chart for a larger version.

As you can see, actual temperatures have not risen as they should have, if only the Mother Earth would conform to the predictions of climate scientists. Despite this lack of predictive power, global warming alarmists (oops, I meant climate change alarmists) insist we should radically restructure our economy in order to accommodate the predictions of climate models that have been shown to be not very predictive — if we are concerned about accuracy.

Temperatures v Predictions 1976-2013

Temperatures v Predictions 1976-2013 b

Kansas wind turbines

Special interests defend wind subsidies at taxpayer cost

man-digging-coinsThe spurious arguments made in support of the wind production tax credit shows just how difficult it is to replace cronyism with economic freedom. From October, 2012.

We often see criticism of politicians for sensing “which way the wind blows,” that is, shifting their policies to pander to the prevailing interests of important special interest groups. The associated negative connotation is that politicians do this without regard to whether these policies are wise and beneficial for everyone.

So when a Member of Congress takes a position that is literally going against the wind in the home district and state, we ought to take notice. Someone has some strong convictions.

This is the case with U.S. Representative Mike Pompeo, a Republican representing the Kansas fourth district (Wichita metropolitan area and surrounding counties.)

The issue is the production tax credit (PTC) paid to wind power companies. For each kilowatt-hour of electricity produced, the United States government pays 2.2 cents. Wind power advocates contend the PTC is necessary for wind to compete with other forms of electricity generation. Without the PTC, it is said that no new wind farms would be built.

Kansas wind turbinesThe PTC is an important issue in Kansas not only because of the many wind farms located there, but also because of wind power equipment manufacturers that have located in Kansas. An example is Siemens. That company, lured by millions in local incentives, built a plant in Hutchinson. Employment was around 400. But now the PTC is set to expire on December 31, and it’s uncertain whether Congress will extend the program. As a result, Siemens has laid off employees. Soon only 152 will be at work in Hutchinson, and similar reductions in employment have happened at other Siemens wind power equipment plants.

Rep. Pompeo is opposed to all tax credits for energy production, and has authored legislation to eliminate them. As the wind PTC is the largest energy tax credit program, Pompeo and others have written extensively of the market distortions and resultant economic harm caused by the PTC. A recent example is Puff, the Magic Drag on the Economy: Time to let the pernicious production tax credit for wind power blow away, which appeared in the Wall Street Journal.

The special interests that benefit from the PTC are striking back. An example comes from Dave Kerr, who as former president of the Hutchinson/Reno County Chamber of Commerce played a role in luring Siemens to Hutchinson. Kerr’s recent op-ed in the Hutchinson News is notable not only for its several attempts to deflect attention away from the true nature of the PTC, but for its personal attacks on Pompeo.

There’s no doubt that the Hutchinson economy was dealt a setback with the announcement of layoffs at the Siemens plant that manufactures wind power equipment. Considered in a vacuum, these jobs were good for Hutchinson. But we shouldn’t make our nation’s policy in a vacuum, that is, bowing to the needs of special interest groups — sensing “which way the wind blows.” When considering everything and everyone, the PTC paid to producers of power generated from wind is a bad policy. We ought to respect Pompeo for taking a principled stand on this issue, instead of pandering to the folks back home.

Kerr is right about one claim made in his op-ed: The PTC for wind power is not quite like the Solyndra debacle. Solyndra received a loan from the Federal Financing Bank, part of the Treasury Department. Had Solyndra been successful as a company, it would likely have paid back the government loan. This is not to say that these loans are a good thing, but there was the possibility that the money would have been repaid.

But with the PTC, taxpayers spend with nothing to show in return except for expensive electricity. And spend taxpayers do.

Kerr, in an attempt to distinguish the PTC from wasteful government spending programs, writes the PTC is “actually an income tax credit.” The use of the adverb “actually” is supposed to alert readers that they’re about to be told the truth. But truth is not forthcoming from Kerr — there’s no difference. Tax credits are government spending. They have the same economic effect as “regular” government spending. To the company that receives them, they can be used — just like cash — to pay their tax bill. Or, the company can sell them to others for cash, although usually at a discounted value.

From government’s perspective, tax credits reduce revenue by the amount of credits issued. Instead of receiving tax payments in cash, government receives payments in the form of tax credits — which are slips of paper it created at no cost and which have no value to government. Created, by the way, outside the usual appropriations process. That’s the beauty of tax credits for big-government spenders: Once the program is created, money is spent without the burden of passing legislation.

If we needed any more evidence that PTC payments are just like cash grants: As part of Obama’s ARRA stimulus bill, for tax years 2009 and 2010, there was in effect a temporary option to take the federal PTC as a cash grant. The paper PTC, ITC, or Cash Grant? An Analysis of the Choice Facing Renewable Power Projects in the United States explains.

Astonishingly, the wind PTC is so valuable that wind power companies actually pay customers to take their electricity. It’s called “negative pricing,” as explained in Negative Electricity Prices and the Production Tax Credit:

As a matter of both economics and public policy, no government production tax subsidy should ever be so large that it creates an incentive for a business to actually pay customers to take its product. Yet, the federal Production Tax Credit (“PTC”) for wind generation is doing just that with increasing frequency in electricity markets across the United States. In some “wind-rich” regions of the country, wind producers are paying grid operators to take their generation during periods of surplus supply. But wind producers more than make up the cost of the “negative price” payment, because they receive a $22/MWH federal production tax credit for every MWH generated.

In western Texas since 2008, wind power generators paid the electrical grid to take their electricity ten percent of the hours of each day.

Once we recognize that tax credits are the same as government spending, we can see the error in Kerr’s argument that if the PTC is ended, it is the same as “a tax increase on utilities, which, because they are regulated, will pass on to consumers.” Well, government passes along the cost of the PTC to taxpayers, illustrating that there really is no free lunch.

Kerr attacks Pompeo for failing to “crusade” against two subsidies that some oil companies receive: Intangible Drilling Costs and the Percentage Depletion Allowance. These programs are deductions, not credits. They do provide an economic benefit to the oil companies that can use them (“big oil” can’t use percentage depletion at all), but not to the extent that tax credits do.

Regarding these deductions, last year Pompeo introduced H. Res 267, titled “Expressing the sense of the House of Representatives that the United States should end all subsidies aimed at specific energy technologies or fuels.”

In the resolution, Pompeo recognized the difference between deductions and credits, the latter, as we’ve seen, being direct subsidies: “Whereas deductions and cost-recovery mechanisms available to all energy sectors are different than credits, loans and grants, and are therefore not taxpayer subsidies; [and] Whereas a deduction of costs and cost recovery with respect to timing is not a subsidy.”

Part of what the resolution calls for is to “begin tax simplification and reform by eliminating energy tax credits and deductions and reducing income tax rates.”

Kerr wants to deflect attention away from the cost and harm of the PTC. Haranguing Pompeo for failing to attack percentage depletion and IDC with the same fervor as tax credits is only an attempt to muddy the waters so we can’t see what’s happening right in front of us. It’s not, as Kerr alleges, “playing Clintonesque games of semantics with us.” As we’ve seen, Pompeo has called for the end of these two tax deductions.

If we want to criticize anyone for inconsistency, try this: Kerr criticizes Pompeo for ignoring the oil and gas deductions, “which creates a glut in natural gas that drives down the price to the lowest levels in a decade.” These low energy prices should be a blessing to our economy. Kerr, however, demands taxpayers pay to subsidize expensive wind power so that it can compete with inexpensive gas. In the end, the benefit of inexpensive gas is canceled. Who benefits from that, except for the wind power industry? The oil and gas targeted deductions also create market distortions, and therefore should be eliminated. But at least they work to reduce prices, not increase them.

By the way, Pompeo has been busy with legislation targeted at ending other harmful subsidies: H.R. 3090: EDA Elimination Act of 2011, H.R. 3994: Grant Return for Deficit Reduction Act, H.R. 3308: Energy Freedom and Economic Prosperity Act, and the above-mentioned resolution.

I did notice, however, that Pompeo hasn’t called for the end to the mohair subsidy. Will Kerr attack him for this oversight?

Finally, Kerr invokes the usual argument of government spenders: Cut the budget somewhere else. That’s what everyone says.

Creating entire industries that exist only by being propped up by government subsidy means that we all pay more to support special interest groups. A prosperous future is best built by relying on free enterprise and free markets in energy, not on programs motivated by the wants of politicians and special interests. Kerr’s attacks on Pompeo illustrate how difficult it is to replace cronyism with economic freedom.

wind-power-turbine-closeup

Energy subsidies for electricity production

Kansas wind turbinesWhen comparing federal subsidies for the production of electricity, it’s important to look at the subsidy values in proportion to the amount of electricity generated. That’s because the scales vary widely. For example, in 2010 for the United States, as can be seen in the accompanying table, coal accounted for the production of 1,851 billion kWh (or megawatt hours) of electricity production. That’s 44.9 percent of all electricity produced. Solar power accounted for the production of 1,851 billion kWh, which is 0.025 percent of all electrical production.

Solar power, however, received 8.2 percent of all federal subsidies, or about 328 times its share of production.

Click table for larger version.

Click table for larger version.

The nearby table and chart are based on data from the Energy Information Administration (EIA), Direct Federal Financial Interventions and Subsidies in Energy in Fiscal Year 2010 through the Congressional Research Service, along with the author’s calculations.

Of particular interest is wind power, as it is receives subsidy in the form of cash equivalent tax credits, and many states (including Kansas) have mandates forcing its use. For the year covered in the table, wind accounted for 2.3 percent of U.S. electricity generation. It received 42.0 percent of federal energy subsidies.

Electricity production and subsidy, 2010

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WichitaLiberty.TV: Government planning, taxes, and carbon

In this episode of WichitaLiberty.TV: The City of Wichita held a workshop where the Community Investments Plan Steering Committee delivered a progress report to the city council. The document holds some facts that ought to make Wichitans think, and think hard. Then: What is the purpose of high tax rates on high income earners? Finally: Advances in producing oil and natural gas make for a more competitive and carbon-efficient economy. Episode 33, broadcast March 2, 2014. View below, or click here to view on YouTube.

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American economy is more competitive and carbon-efficient, says economist

Stephen Moore. Credit: Willis Bretz/Heritage Foundation

Stephen Moore. Credit: Willis Bretz/Heritage Foundation

The oil and gas boom in America boosts our competitiveness in the world economy while at the same time reducing carbon emissions, says economist Stephen Moore.

Moore recently left the Wall Street Journal to accept a position at Heritage Foundation as chief economist. He presented to an audience at a conference titled “The Tax & Regulatory Impact on Industry, Jobs & The Economy, and Consumers” produced by the Franklin Center for Government and Public Integrity.

A large portion of his presentation was on energy and its important role in the economy, and how radical environmentalists — the “green” movement — are harming our economy and people. An irony, he said, is that while President Barack Obama is in the “hip pocket” of radical environmentalists, he is presiding over the greatest oil and gas boom in American history. This boom is proceeding in spite of government, not because of it.

Moore emphasized the importance of energy costs to low-income people. Rising energy costs are like taxes on them, he said, while the wealthy can more easily absorb higher energy costs. “To be green is to be against capitalism, against progress, against poor people, against jobs.”

The boom in oil and gas production in America, made possible by horizontal drilling and fracking, is ahead of the rest of the world. While European countries have in the past embraced green energy technologies, these policies have failed, and the countries are retreating from them. Now, European countries want to use American drilling technologies, he said.

The lower electricity prices in America are a competitive advantage over Europe and China. German auto manufacturers are shutting plants in Europe and moving them to the United States, he said.

Of radical environmentalist groups. Moore said: “They don’t even care about global warming. If they really cared about global warming, they would be cheerleading fracking. Because fracking is making natural gas the new fuel for America. And guess what? Natural gas emits less carbon. It’s a great antidote to global warming.”

(According to the U.S. Energy information Administration, when generating electricity, coal emits from 2.08 to 2.18 pounds of carbon dioxide per kilowatt-hour electricity generated. Natural gas emits 1.22 pounds, or about 43 percent less carbon dioxide.)

Moore went on to tell the attendees that it is the United States that has reduced its carbon emissions the greatest amount in the last five years. He said this is remarkable in light of the fact that the U.S. didn’t sign the Kyoto Treaty, the U.S. didn’t implement cap-and-trade, and didn’t implement a carbon tax. “You would think these environmental groups would be applauding natural gas. Now these environmentalist groups have a new campaign called ‘beyond natural gas,’” he said.

Moore explained that at first, environmentalists said they could accept natural gas as a “bridge fuel” to solar power and wind. They were in favor of natural gas, he said, up until the time it became cheap and plentiful. Now, they are against gas. “My point is, the left and environmentalists are against any energy source that works.”

Over the past six years the U.S. has spent $100 billion promoting wind and solar power, but these two sources together account for just 2.2 percent of electricity generation. Even if the country were to quadruple the portion of electricity generated by these two renewable sources over the next 10 to 20 years, the nation would still need to get 90 percent of its electricity from other sources. Moore was doubtful that the country could quadruple the output from wind and solar.

Trends in carbon emissions

To further investigate the topics Moore raised, I gathered data from Global Carbon Atlas and prepared interactive visualizations using Tableau Public. You may access and use the visualizations by clicking here. Following are static excerpts from the visualizations. Click on each image for a larger version.

Click image for larger version.

Click image for larger version.

Looking at the amount of total carbon emissions, we see two important facts. First, after rising slowly, carbon emissions by the United States have declined in recent years. Second, carbon emissions by China are soaring. China surpassed the U.S. around 2005, and the gap between the two countries is increasing.

Click image for larger version.

Click image for larger version.

Note also that carbon emissions in India are rising. Emissions in most advanced economies are steady or falling. These trends are emphasized in the chart that shows carbon emissions for each country indexed from a common starting point. Emissions from China and India are rapidly rising, while emissions from countries with advanced economies have risen slowly or have declined.

Click image for larger version.

Click image for larger version.

A chart that shows the carbon emissions efficiency of countries, that is, the carbon emitted per unit of GDP, shows that in general, countries are becoming more efficient. Advanced economies such as the U.S., Japan, and Germany have an advantage in this metric. These countries emit about one-fourth as much carbon per unit GDP as does China.

Click image for larger version.

Click image for larger version.

The chart of carbon emissions per person in each country show that the United States leads in this measure. In 2011, the U.S. emitted about 17 tons of carbon dioxide per person. China was at 6.6, and India at 1.7. But, the trend in the U.S. is downward, that is, less carbon emitted per person. In China and India, the trend is up, and rising rapidly in China.

Voice for Liberty Radio: Jeff Glendening, Americans for Prosperity

Voice for Liberty logo with microphone 150In this episode of WichitaLiberty Podcasts: The day after Kansas Governor Sam Brownback’s State of the State Address, I talk with Jeff Glendening at the Kansas Capitol. He’s Kansas State Director for Americans for Prosperity.

Prior to joining AFP in 2013, Jeff most recently was vice president of political affairs with the Kansas Chamber of Commerce, where he worked to expand the Chamber’s grassroots network, and to promote a pro-growth economic climate in Kansas. Aside from his work with the Kansas Chamber, Jeff has been involved in Kansas politics for a number of years, and has worked on the staffs of several members of legislative leadership, including Speaker of the House, House Majority Leader and Speaker Pro Tem. Jeff has also worked on gubernatorial, U.S. Senate and U.S. House campaigns.

This is podcast episode number 3, released on January 17, 2014.

Shownotes

Americans for Prosperity-Kansas
Americans for Prosperity, national site
Americans for Prosperity-Kansas statement on State of the State Address
State of the State address for 2014, by Sam Brownback
Response by House of Representatives Minority Leader Paul Davis

Coalition to Congress: End the wind production tax credit

Following is a letter from a coalition of organizations led by Americans for Prosperity advocating for the end of special treatment and subsidies for one industry.

September 24, 2013
Dear Senators and Representatives:

On behalf of the millions of members that our organizations represent, we encourage you to oppose extending the main source of federal support for wind energy, the production tax credit (PTC). The problems with bestowing government favors on wind energy are myriad — it doesn’t produce cheaper energy, it threatens electrical grid reliability, it’s inefficient, it’s unprincipled tax policy, to name a few — and it’s time to end this misguided handout.

Proposals to phase out the credit over time are a red herring. A phaseout is still an extension, and it does not address any of the problems that arise from government backing for wind energy. Besides, the PTC in its current form already has a phaseout built in: Wind farm projects may claim the tax credit for 10 years following receiving an investment letter.

In addition, we discourage you from including a PTC extension in a large tax extenders package at the end of the year. This is precisely what happened this past December; a 1-year PTC extension and expansion found its way into the Fiscal Cliff deal at the last minute. This provision expanded wind farm eligibility from those that were already in operation to those that were simply in the planning stages. If Congress is serious about comprehensive tax reform that lowers rates for everyone, then special provisions like the PTC that clutter the tax code should be first on the chopping block.

The PTC is scheduled expire on December 31, 2013. Congress should ensure that it does so as to clear the way for a simpler, less burdensome tax system across the board.

Also, Christine Harbin Hanson, a policy analyst for Americans for Prosperity, contributes the following article:

Kansas wind turbines

Expiring wind subsidies bring a sense of déjà vu to Capitol Hill. The main federal tax break for wind energy, the wind production tax credit (PTC), is on track to expire at the end of the year, and history is poised to repeat itself. This year, Congress should break from the past and end this wasteful handout for the wind industry, once and for all.

Over the next four months, Washington will engage in the same debate as always. The wind industry will claim that it needs even more time and more subsidies to get on its feet. Meanwhile, Americans for Prosperity and our coalition partners will point out the numerous economic and philosophical problems with the tax credit — it doesn’t produce cheaper energy, it’s an unreliable energy source, it’s inefficient, it’s not principled, it distorts markets, etc. Over the last twenty years, Congress has repeatedly agreed to the PTC, usually in one or two-year intervals.

This is exactly what happened with this past extension. Big Wind produced a flurry of lobbying activity while Senate Minority Leader McConnell (R-Ky.) and Vice President Biden (D) negotiated a deal to avert the Fiscal Cliff. As Tim Carney noted in the Washington Examiner at the time, this lobbying included “Obama’s closest corporate confidants as well as former congressmen from both parties.” In the end, a 1-year PTC extension and expansion found its way into the Fiscal Cliff deal at the 11th hour, alongside several additional targeted tax credits for renewable energy. Not only was the subsidy extended but it was expanded from wind farms that were already in operation to those that were simply in the planning stages.

This upcoming expiration has a plot twist: The American Wind Energy Association senses that its D.C. gravy train may be coming to an end and it will likely propose phasing down the tax credit over a period of years. Congress should avoid this trap. A phaseout is still an extension, and it does not address the problems that arise from subsidizing wind energy. Besides, the PTC in its current form already has a phaseout built in: wind farm projects may claim the tax credit for 10 years following receiving an investment letter.

Washington may be wising up to the pitfalls of using federal incentives to encourage politically-favored energy sources. Grants and loan guarantees are drying up, tarnished by repeated failures like Solyndra, Beacon Power, Ener1, A123 Systems and the list goes on-and-on. The main tax breaks for ethanol have also gone away, and momentum is building in Congress to repeal green energy mandates like the renewable fuel standard. This phase out proposal is Big Wind’s attempt to get more drink at the taxpayer trough.

Laughably, the only group calling for making the tax credit permanent is the White House. Apparently the Obama administration has still not learned from its repeated green energy failures, showing just how out of touch it is with economic realities.

Congress should end—not phase down, not extend—the wind production tax credit this year. Americans deserve energy solutions that can make it on their own in the marketplace—not ones that need to be propped up by government indefinitely. Washington’s long-time policy of giving preferential tax treatment to special interests simply isn’t working.

Renewables portfolio standard: Good or bad for the Kansas economy?

Kansas wind turbines

A report submitted to the Kansas House Standing Committee on Energy and Environment claims the Kansas economy benefits from the state’s Renewables Portfolio Standard, but an economist presented testimony rebutting the key points in the report.

RPS is a law that requires the state’s electricity utilities to generate or purchase a certain portion of their electricity from renewable sources, which in Kansas is almost all wind. An argument in favor of wind energy requirementy from the Polsinelli Shugart law firm is at The Economic Benefits of Kansas Wind Energy.

Michael Head, a Research Economist at Beacon Hill Institute presented a paper that examined each of Polsinell’s key findings. The paper may be read at The Economic Impact of the Kansas Renewable Portfolio Standard and Review of “The Economic Benefits of Kansas Wind Energy” or at the end of this article. An audio recording of Head speaking on this topic is nearby.

Michael Head, Beacon Hill Institute

Here are the five key findings claimed to be economic benefits to the Kansas economy, and portions of Head’s responses.

Key Finding #1: “New Kansas wind generation is cost-effective when compared to other sources of new intermittent or peaking electricity generation.”

The first observation to make from this key finding is that if it were true the state RPS policy is not necessary. If wind power is truly cost-effective compared to other sources of energy, state mandates that wind power be used should be repealed, allowing wind power to compete with other technologies to provide low cost electricity in Kansas.

This point is obvious. The actions of the wind power industry — insisting on mandates and subsidies — lets us know that they don’t believe their own claim.

Key Finding #2: “Wind generation is an important part of a well-designed electricity generation portfolio, and provides a hedge against future cost volatility of fossil fuels.”

Hedging has been, and will continue to be, a useful tool for utilities, and benefits the consumer. But the Kansas state government should not engage in this level of industrial policy by regulating just how much utilities can hedge, all for the sake of requiring wind power production. This is not a benefit in itself. Utilities will attempt to maximize profits by consistently analyzing the energy market and making the best decisions, often through long term purchasing agreements. … In short, hedging is a valuable tool when left to the discretion of the utility, but by utilizing a heavy-handed mandate, state lawmakers are actually constraining the ability of the utilities to make sound business decisions.

Key Finding #3: “Wind generation has created a substantial number of jobs for Kansas citizens.”

This key finding fails to take into consideration opportunity costs, a concept that Bastiat explained in his 1850 essay, and is a prime example of the reviewed paper only considering benefits. If a shopkeeper has a window broken, this creates work for a glazer to replace the window. However, this classic “broken window” fallacy mistakes breaking windows as job creation policy. At this point “The Economic Benefits of Kansas Wind Energy” is correct, wind generation does create jobs, just as a broken window creates jobs. But the report stops at this point and fails to provide a complete analysis of the effect of wind generation on total employment in Kansas.

As Bastiat showed, a consideration must be made to the opportunity cost. How would the shopkeeper have spent his money if he did not need to replace his window? He could use the money on capital investment, further growing his business, hire another worker or make various other purchases. Regardless of what it was, they would have all brought him more benefit, than replacing his window. If not, he would have broken the window himself.

This is one of the most important points: By forcing Kansans to pay for more expensive electricity, we lose the opportunity to use money elsewhere.

Key Finding #4: “Wind generation has created significant positive impact for Kansas landowners and local economics.”

This key finding makes a common mistake by assuming transfer payments are a benefit, a fallacy. The transfers of money via lease payments or property tax payments are not benefits. This transfer of money is a cost to one party and a benefit on the other, and can be illustrated easily.

What if Kansas wind farms vastly overpaid for their land and lease payments were valued at $1 billion a year. This report would place the benefit of wind power leasing this land at $1 billion a year. But the project has not changed, where did these new benefits come from?

In fact, there would not be any change to the net benefit of the project. Landowners would amass benefits equal to $1 billion minus the land value and utilities would amass costs equal to $1 billion minus the land value. These costs would in turn be passed along to rate payers in the form of higher utility costs. This illustrates the point that this policy is industrial policy. By dispersing the costs of a project to all citizens in the state, small, but powerful, groups with strong lobbying efforts are able to gather the rewards.

Key Finding #5 “The Kansas Renewable Portfolio Standard is an important economic development tool for attracting new business to the state.”

This key finding is related closely with the analysis of the job benefits that wind power purportedly conveys. Of course, legally requiring that utilities use specific sources of electricity will attract new business in that sector to the state. But we need to see the whole picture. This policy has costs, which will be borne by state residents and businesses via higher utility prices.

In conclusion, Head asked the obvious question: “With all of these supposed benefits of wind power, why does it require a government mandate and taxpayer funding?”

Wind tax credit promotes expensive electricity

Conservative and free-market groups are asking Congress to oppose extending the Production Tax Credit for production of electricity from wind.

The letter, presented below, is designed for representatives from states that don’t have a Renewable Portfolio Standard, which is a policy or law that requires a certain amount of electricity to be produced from renewable sources, which is primarily wind in most places. Kansas has an RPS, and Governor Sam Brownback actively supports maintaining this standard, which will require that more Kansas electricity be produced from wind. Kansas Policy Institute has found that RPS will result in higher electricity costs, fewer jobs, and less investment in Kansas. Its summary is at The Economic Impact of the Kansas Renewable Portfolio Standard, and the full report is here.

The letter points out that the PTC has the effect of transferring subsidy from states without RPS to those states, like Kansas, that do.

December 12, 2012
Dear Members of Congress:

We write to urge your opposition to extending the wind Production Tax Credit (PTC). Created in 1992 by the Energy Policy Act, the PTC has far outlived its usefulness. Moreover, as a member of Congress serving a state that does not have a renewable energy mandate, you should be aware that the PTC essentially transfers taxpayer dollars from your constituents and subsidizes the states with such mandates. Renewable energy mandates force utilities to buy politically-favored forms of energy such as wind, while your state has wisely chosen to allow the most abundant and affordable forms of energy to be purchased by consumers and industries.

The wind PTC provides a tax credit of 2.2 cents per kilowatt-hour, and lasts for ten years for anyone receiving it. With the wholesale price of electricity frequently ranging from 2.5 to 4.5 cents per kilowatt-hour, the PTC is worth a large percentage of the total price. This makes the wind industry one of the most heavily subsidized forms of energy. In 2010, federal subsidies paid $56 for every megawatt hour of wind energy compared to $0.64 for coal and natural gas electricity.

Despite having this generous subsidy for two decades, wind only produces 3 percent of America’s electricity. This corporate dependence on federal subsidies not only harms the taxpayers who finance the PTC, it also creates an improper incentive for wind companies to focus on obtaining lucrative subsidies rather than long-term sustainability and competitiveness. It is time the wind energy industry stood on its own and continued funding by the federal government will only hurt cost-effective energy sources as well as American taxpayers.

Lastly, for the twenty-one states that do not have a renewable energy mandate in place — states like your own — the stakes are much higher. Under the structure of the PTC, the bulk of the tax credits flow to those states that have the most wind generation capacity and those happen to be states with an RPS. This is because the PTC helps to disguise the true cost of the mandate. Extending the wind PTC ensures that your constituents will continue to subsidize wind power in other states that have made political decisions to force consumers to buy more expensive and less reliable forms of energy — like wind.

Reliable, affordable, and ‘always on’ electricity is critical to get our economy back on track. The wind PTC promotes unreliable and expensive energy to the detriment of dependable and cost-effective forms of electricity generation. By taking a principled stand against the PTC, you help taxpayers in your own state and ensure more cost-effective electricity generation overall. We urge you to allow this wasteful subsidy to expire, as planned, at the end of the year.

Freedom Action
Competitive Enterprise Institute
American Conservative Union
American Energy Alliance
Heritage Action
American Commitment

Nation can no longer afford wind tax credit

From The Hill:

Sen. Lamar Alexander (R-Tenn.) on Wednesday said the nation’s fiscal situation has become so dire that the government can no longer afford to maintain a wind power production credit that has been in place since in 1992.

“I think there is certainly the largest realization that we’ve ever had that it’s time for it to end,” Alexander said at a Wednesday event hosted by The Hill and sponsored by the American Energy Alliance.

In a longer story, The Hill reports on the efforts of U.S. Representative Mike Pompeo, a Republican representing the Kansas fourth district (Wichita metropolitan area and surrounding counties) to end the wind production tax credit:

Rep. Mike Pompeo (R-Kan.) said he hopes that conversation leads to the elimination of all energy subsidies.

Pompeo has led the House charge against the credit. He got 46 other House GOP members to sign a September letter urging Boehner to nix the provision.

Pompeo said the wind credit’s history is instructive when debating the benefits of tax carve-outs for specific industries.

He pointed to a steep decline in wind turbine installations when the credit last lapsed in 2004 as proof that subsidies distort markets and investment. And planned projects and investments already are down for next year as a result of the credit’s cloudy future.

“I think that’s further evidence that it’s non-economic,” Pompeo said.

Pompeo has been at the forefront of efforts to end subsidies that distort energy markets. He and Alexander recently contributed an op-ed to the Wall Street Journal, which may be read at Puff, the Magic Drag on the Economy: Time to let the pernicious production tax credit for wind power blow away. Pompeo also develops the argument in Governor Romney is right: End the wind production tax credit and Mike Pompeo: We need capitalism, not cronyism. The special interests that benefit from cronyism have struck back, but unsuccessfully: Kerr’s attacks on Pompeo’s energy policies fall short.

Kerr’s attacks on Pompeo’s energy policies fall short

We often see criticism of politicians for sensing “which way the wind blows,” that is, shifting their policies to pander to the prevailing interests of important special interest groups. The associated negative connotation is that politicians do this without regard to whether these policies are wise and beneficial for everyone.

So when a Member of Congress takes a position that is literally going against the wind in the home district and state, we ought to take notice. Someone has some strong convictions.

This is the case with U.S. Representative Mike Pompeo, a Republican representing the Kansas fourth district (Wichita metropolitan area and surrounding counties.)

The issue is the production tax credit (PTC) paid to wind power companies. For each kilowatt-hour of electricity produced, the United States government pays 2.2 cents. Wind power advocates contend the PTC is necessary for wind to compete with other forms of electricity generation. Without the PTC, it is said that no new wind farms would be built.

The PTC is an important issue in Kansas not only because of the many wind farms located there, but also because of wind power equipment manufacturers that have located in Kansas. An example is Siemens. That company, lured by millions in local incentives, built a plant in Hutchinson. Employment was around 400. But now the PTC is set to expire on December 31, and it’s uncertain whether Congress will extend the program. As a result, Siemens has laid off employees. Soon only 152 will be at work in Hutchinson, and similar reductions in employment have happened at other Siemens wind power equipment plants.

Rep. Pompeo is opposed to all tax credits for energy production, and has authored legislation to eliminate them. As the wind PTC is the largest energy tax credit program, Pompeo and others have written extensively of the market distortions and resultant economic harm caused by the PTC. A recent example is Puff, the Magic Drag on the Economy: Time to let the pernicious production tax credit for wind power blow away, which appeared in the Wall Street Journal.

The special interests that benefit from the PTC are striking back. An example comes from Dave Kerr, who as former president of the Hutchinson/Reno County Chamber of Commerce played a role in luring Siemens to Hutchinson. Kerr’s recent op-ed in the Hutchinson News is notable not only for its several attempts to deflect attention away from the true nature of the PTC, but for its personal attacks on Pompeo.

There’s no doubt that the Hutchinson economy was dealt a setback with the announcement of layoffs at the Siemens plant that manufactures wind power equipment. Considered in a vacuum, these jobs were good for Hutchinson. But we shouldn’t make our nation’s policy in a vacuum, that is, bowing to the needs of special interest groups — sensing “which way the wind blows.” When considering everything and everyone, the PTC paid to producers of power generated from wind is a bad policy. We ought to respect Pompeo for taking a principled stand on this issue, instead of pandering to the folks back home.

Kerr is right about one claim made in his op-ed: The PTC for wind power is not quite like the Solyndra debacle. Solyndra received a loan from the Federal Financing Bank, part of the Treasury Department. Had Solyndra been successful as a company, it would likely have paid back the government loan. This is not to say that these loans are a good thing, but there was the possibility that the money would have been repaid.

But with the PTC, taxpayers spend with nothing to show in return except for expensive electricity. And spend taxpayers do.

Kerr, in an attempt to distinguish the PTC from wasteful government spending programs, writes the PTC is “actually an income tax credit.” The use of the adverb “actually” is supposed to alert readers that they’re about to be told the truth. But truth is not forthcoming from Kerr — there’s no difference. Tax credits are government spending. They have the same economic effect as “regular” government spending. To the company that receives them, they can be used — just like cash — to pay their tax bill. Or, the company can sell them to others for cash, although usually at a discounted value.

From government’s perspective, tax credits reduce revenue by the amount of credits issued. Instead of receiving tax payments in cash, government receives payments in the form of tax credits — which are slips of paper it created at no cost and which have no value to government. Created, by the way, outside the usual appropriations process. That’s the beauty of tax credits for big-government spenders: Once the program is created, money is spent without the burden of passing legislation.

If we needed any more evidence that PTC payments are just like cash grants: As part of Obama’s ARRA stimulus bill, for tax years 2009 and 2010, there was in effect a temporary option to take the federal PTC as a cash grant. The paper PTC, ITC, or Cash Grant? An Analysis of the Choice Facing Renewable Power Projects in the United States explains.

Astonishingly, the wind PTC is so valuable that wind power companies actually pay customers to take their electricity. It’s called “negative pricing,” as explained in Negative Electricity Prices and the Production Tax Credit:

As a matter of both economics and public policy, no government production tax subsidy should ever be so large that it creates an incentive for a business to actually pay customers to take its product. Yet, the federal Production Tax Credit (“PTC”) for wind generation is doing just that with increasing frequency in electricity markets across the United States. In some “wind-rich” regions of the country, wind producers are paying grid operators to take their generation during periods of surplus supply. But wind producers more than make up the cost of the “negative price” payment, because they receive a $22/MWH federal production tax credit for every MWH generated.

In western Texas since 2008, wind power generators paid the electrical grid to take their electricity ten percent of the hours of each day.

Once we recognize that tax credits are the same as government spending, we can see the error in Kerr’s argument that if the PTC is ended, it is the same as “a tax increase on utilities, which, because they are regulated, will pass on to consumers.” Well, government passes along the cost of the PTC to taxpayers, illustrating that there really is no free lunch.

Kerr attacks Pompeo for failing to “crusade” against two subsidies that some oil companies receive: Intangible Drilling Costs and the Percentage Depletion Allowance. These programs are deductions, not credits. They do provide an economic benefit to the oil companies that can use them (“big oil” can’t use percentage depletion at all), but not to the extent that tax credits do.

Regarding these deductions, last year Pompeo introduced H. Res 267, titled “Expressing the sense of the House of Representatives that the United States should end all subsidies aimed at specific energy technologies or fuels.”

In the resolution, Pompeo recognized the difference between deductions and credits, the latter, as we’ve seen, being direct subsidies: “Whereas deductions and cost-recovery mechanisms available to all energy sectors are different than credits, loans and grants, and are therefore not taxpayer subsidies; [and] Whereas a deduction of costs and cost recovery with respect to timing is not a subsidy.”

Part of what the resolution calls for is to “begin tax simplification and reform by eliminating energy tax credits and deductions and reducing income tax rates.”

Kerr wants to deflect attention away from the cost and harm of the PTC. Haranguing Pompeo for failing to attack percentage depletion and IDC with the same fervor as tax credits is only an attempt to muddy the waters so we can’t see what’s happening right in front of us. It’s not, as Kerr alleges, “playing Clintonesque games of semantics with us.” As we’ve seen, Pompeo has called for the end of these two tax deductions.

If we want to criticize anyone for inconsistency, try this: Kerr criticizes Pompeo for ignoring the oil and gas deductions, “which creates a glut in natural gas that drives down the price to the lowest levels in a decade.” These low energy prices should be a blessing to our economy. Kerr, however, demands taxpayers pay to subsidize expensive wind power so that it can compete with inexpensive gas. In the end, the benefit of inexpensive gas is canceled. Who benefits from that, except for the wind power industry? The oil and gas targeted deductions also create market distortions, and therefore should be eliminated. But at least they work to reduce prices, not increase them.

By the way, Pompeo has been busy with legislation targeted at ending other harmful subsidies: H.R. 3090: EDA Elimination Act of 2011, H.R. 3994: Grant Return for Deficit Reduction Act, H.R. 3308: Energy Freedom and Economic Prosperity Act, and the above-mentioned resolution.

I did notice, however, that Pompeo hasn’t called for the end to the mohair subsidy. Will Kerr attack him for this oversight?

Finally, Kerr invokes the usual argument of government spenders: Cut the budget somewhere else. That’s what everyone says.

Creating entire industries that exist only by being propped up by government subsidy means that we all pay more to support special interest groups. A prosperous future is best built by relying on free enterprise and free markets in energy, not on programs motivated by the wants of politicians and special interests. Kerr’s attacks on Pompeo illustrate how difficult it is to replace cronyism with economic freedom.

Pompeo: Wind production tax credit should expire

U.S. Representative Mike Pompeo, a Republican who represents the Kansas fourth district, and U.S. Senator Lamar Alexander contribute the following article on the harm of the wind power production tax credit (PTC). The NorthBridge Group report referenced in the article is available at Negative electricity prices and the production tax credit.

Puff, the Magic Drag on the Economy
Time to let the pernicious production tax credit for wind power blow away

By Lamar Alexander And Mike Pompeo

As Congress works to reduce spending and avert a debt crisis, lawmakers will have to decide which government projects are truly national priorities, and which are wasteful. A prime example of the latter is the production tax credit for wind power. It is set to expire on Dec. 31 — but may be extended yet again, for the seventh time.

This special provision in the tax code was first enacted in 1992 as a temporary subsidy to enable a struggling industry to become competitive. Today the provision provides a credit against taxes of $22 per megawatt hour of wind energy generated.

From 2009 to 2013, federal revenues lost to wind-power developers are estimated to be $14 billion — $6 billion from the production tax credit, plus $8 billion courtesy of an alternative-energy subsidy in the stimulus package — according to the Joint Committee on Taxation and the Treasury Department. If Congress were to extend the production tax credit, it would mean an additional $12 billion cost to taxpayers over the next 10 years.

There are many reasons to let this giveaway expire, including wind energy’s inherent unreliability and its inability to stand on its own two feet after 20 years. But one of the most compelling reasons is provided in a study released Sept. 14 by the NorthBridge Group, an energy consultancy. The study discusses a government-created economic distortion called “negative pricing.”

This is how it works. Coal- and nuclear-fired plants provide a reliable supply of electricity when the demand is high, as on a hot summer day. They generate at lower levels when the demand is low, such as at night.

But wind producers collect a tax credit for every kilowatt hour they generate, whether utilities need the electricity or not. If the wind is blowing, they keep cranking the windmills.

Why? The NorthBridge Group’s report (“Negative Electricity Prices and the Production Tax Credit”) finds that government largess is so great that wind producers can actually pay the electrical grid to take their power when demand is low and still turn a profit by collecting the credit — and they are increasingly doing so. The wind pretax subsidy is actually higher than the average price for electricity in many of the wholesale markets tracked by the Energy Information Administration.

This practice drives the price of electricity down in the short run. Wind-energy supporters say that’s a good thing. But it is hazardous to the economy’s health in the long run.

Temporarily lower energy prices driven by wind-power’s negative pricing will cripple clean-coal and nuclear-power companies. But running coal and nuclear out of business is not good for the U.S. economy. There is no way a country like this one — which uses 20% to 25% of all the electricity in the world — can operate with generators that turn only when the wind blows.

The Obama administration and other advocates of wind power argue that the subsidy provided by the tax credit allows the wind industry to sustain American jobs. But they are jobs that exist only because of the subsidy. Keeping a weak technology alive that can’t make it on its own won’t create nearly as many jobs as the private sector could create if it had the kind of low-cost, reliable, clean electricity that wind power simply can’t generate.

While the cost of renewable energy has declined over the years, it is still far more expensive than conventional sources. And even the administration’s secretary of energy, Steven Chu, calls wind “a mature technology,” which should mean it is sufficiently advanced to compete in a free market without government subsidies. If wind power cannot compete on its own after 20 years without costly special privileges, it never will.

Pickens changes his mind, again

Energy investor T. Boone Pickens has changed his mind about government subsidy of energy markets — again.

Until recently Pickens has been promoting federal legislation titled H.R. 1380: New Alternative Transportation to Give Americans Solutions Act of 2011, or NAT GAS act. The bill provides a variety of subsidies, implemented through tax credits, to producers and users of natural gas. The goal is to promote the use of natural gas for a transportation fuel, particularly for long-haul trucks.

Now, according to reporting in Politico, Pickens said about the transition to natural gas “It’s going to happen, and you don’t have to have Washington do it, thank God.”

Later in the article Pickens is quoted as saying “You don’t have to have a tax credit; it’s going to happen.”

Before promoting subsidies for natural gas as a transportation fuel, Pickens actively promoted wind power, another form of energy production that receives government subsidy. In 2008 Pickens ordered 667 wind turbines worth $2 billion from General Electric. Now, in the Politico article, he concedes he lost a lot of money on this venture.

His plan, at that time, was to use wind power to generate electricity, and the natural gas saved would be used to power transportation. But there’s another relationship between wind power and gas, and it stems from the unreliability and variability of wind power. It’s difficult to quickly adjust the output of most power plants. But natural gas turbine plants are an exception. Kansas recently saw one of its major electric utilities complete a new natural gas power plant. The need for the plant was at least partly created by its investment in wind: A document produced by Westar titled The Greenhouse Gas Challenge noted the “Construction of the 665 MW natural gas-fired Emporia Energy Center, providing the ability to efficiently follow the variability of wind generation.” In another document announcing a request for a rate increase it stated “Our Emporia Energy Center is excellent for following the variability of wind production.”

At the time of these investments by Pickens and Westar, the price of natural gas was high. Now it is low — so low, and the prospects for future low prices certain enough — that Pickens has abandoned his wind farm projects. Even with all the subsidy granted to wind power, it’s cheaper to generate electricity with gas.

Let’s hope this is the last time Pickens develops a plan to tap the federal taxpayer to pay for his plans.

Governor Romney is right: End the wind production tax credit

U.S. Representative Mike Pompeo, a Republican who represents the Kansas fourth district, contributes the following article on the harm of government involvement in energy markets, wind power specifically. Pompeo has written extensively on energy; see Pompeo on energy tax simplification, Era of energy subsidies is over, and Free market energy solutions don’t jeopardize national security. He has also introduced legislation to end all tax credits for energy, H.R. 3308: Energy Freedom and Economic Prosperity Act.

There’s been a steady drumbeat from those seeking an extension of the wind production tax credit. For many reasons, including some that former Massachusetts Gov. Mitt Romney has carefully highlighted in his opposition, this is a bad idea.

First, an extension continues this unsettling policy trend in which citizens are asked to bear all the risks and gain none of the rewards. This socialization of risks and privatization of profits guarantees disasters, for corporate boards and even their federal overseers can become careless and, in some instances, reckless. This fact was clearly demonstrated by the Solyndra debacle — when a company with close ties to the Obama administration lost more than a half billion dollars of taxpayers’ money. At the heart of that fiasco was both the company and the administration’s indifference to the taxpayers.

Solyndra also revealed something else damaging about federal involvement in markets: the potential for political corruption. It’s clear that the Obama administration became emotionally, and inappropriately, invested in the fortunes of one company and one sector. When that happens, the system is compromised, cronyism flourishes and corruption is inevitable.

President Barack Obama talks about the need to “invest” in alternative energy sources. But the reality is that he is not investing his money — he’s spending yours. I’m not sure that too many Americans would choose the president to manage their retirement accounts. His record — a jobless and exceedingly shallow recovery — is not good.

With this production tax credit extension, the wisdom of the investment is especially dubious. Wind companies and their lobbyists have, for the last year, been telling all who would listen that the expiration of the tax credit could spell doom for their industry. Obama repeats this claim regularly on the campaign trail.

But what does that say about the industry? If you need a tax credit to compete, you are probably not that competitive.

Moreover, the tax credit is not de minimis for either taxpayers or companies that are lobbying for it. It will cost the taxpayers more than 12 billion dollars inside the budget window. Worse, the credit is set at 2.2 cents per kilowatt hour. Just to compare, the national average for produced power is around 6 cents per kilowatt hour. That means that the wind industry gets an almost 40 percent subsidy for each unit it produces. How many companies would like that?

You also have to remember that wind power enjoys a mandate in more than 30 states. That is, regardless of cost — or price to ratepayers — utilities must use wind or other renewables for specific amounts of power generation. So, the wind companies enjoy not only a tax credit, but a must-use mandate as well — regardless of cost.

It would be one thing if we were running out of natural gas and confronted a real national requirement to use alternative energy. But it’s the reverse. The United States has more traditional energy resources than anywhere else on Earth, according to the Congressional Research Service. With the surge in production from the shale formations, a new Barclays report just concluded, natural gas will likely dominate wind in the marketplace for the foreseeable future.

Even now, in places like Williston, N.D., companies are hiring everyone who can get there to work on rigs or in ancillary jobs. If the president is genuinely worried about jobs, maybe he should visit the Bakken in North Dakota, or the Marcellus in Pennsylvania or the Eagle Ford in Texas.

Using wind power to generate electricity is not a new idea. The first windmills used to generate electricity went up in the 19th Century. The production tax credit is also not a new idea. It is now about 20 years old.

Romney’s opposition to continuing the wind subsidy is absolutely correct. At some point, an industry has to either succeed or fail on its own merits.

For wind companies, we are at that point now.

Renewable Portfolio Standard costly for Kansas

A policy promoted by Kansas Governor Sam Brownback will result in higher electricity costs, fewer jobs, and less investment in Kansas.

This is the conclusion of a new study by Kansas Policy Institute and Beacon Hill Institute. The policy is Renewable Portfolio Standard, or RPS, which mandates that a minimum amount of a state’s electricity be produced by renewable sources. In Kansas, the primary renewable source of electricity is wind.

In a press release accompanying the report, KPI said “Renewable energy is more expensive than conventional energy, so government mandates are necessary to ensure that more renewable energy is purchased. However, the unseen consequences of well-intended efforts to increase energy independence are rarely considered. The authors estimate that by 2020, the average household’s electricity bill will increase by $660, approximately 12,000 fewer jobs will have been created, and business investment in the state will be $191 million less than without the mandate.” The press release and summary is at The Economic Impact of the Kansas Renewable Portfolio Standard, and the full report is here.

Brownback has supported, first as U.S. Senator and now Kansas Governor, renewable portfolio standards, mandating the production of wind power. U.S. Senator Jerry Moran favors the production tax credit that makes wind feasible, but forces taxpayers to subsidize an expensive form of energy. Together they penned an op-ed that tortures logic to defend the tax credits. Each has spoken out on his own on the national stage. See Brownback on wind, again and Wind energy split in Kansas.

Driving through western Kansas and marveling at all the wind farms might lead one to conclude that the efforts of Brownback and Moran are a success. Viewing the spinning turbines — when they are in fact spinning — is just the start of understanding the impact of wind power, mandates for its use, and taxpayer subsidy for its production. The KPI report is an important document that lets us understand more of the full effect of renewable portfolio standards.

Energy subsidies exposed

On the campaign trail, President Barack Obama calls for an end to energy subsidies for the fossil fuel industry. It turns out, however, that this industry receives relatively little subsidy, while the president’s favored forms of energy investment — wind and solar — receive much more. Additionally, coal, oil, and gas industries paid billions in taxes to the federal government, while electricity produced by solar and wind are a cost to taxpayers.

Saturday’s Wall Street Journal piece The Energy Subsidy Tally: Wind and solar get the most taxpayer help for the least production gathers the facts: “The nearby chart shows the assistance that each form of energy for electricity production received in 2010. The natural gas and oil industry received $2.8 billion in total subsidies, not the $4 billion Mr. Obama claims on the campaign trail, and $654 million for electric power. The biggest winner was wind, with $5 billion. Between 2007 and 2010, total energy subsidies rose 108%, but solar’s subsidies increased six-fold and wind’s were up 10-fold.”

When looking at subsidy received per unit of power produced, the Journal found that oil, gas, and coal received $0.64 per megawatt hour, hydropower $0.82, nuclear $3.14, wind $56.39, and solar $775.64. Commented the Journal: “So for every tax dollar that goes to coal, oil and natural gas, wind gets $88 and solar $1,212. After all the hype and dollars, in 2010 wind and solar combined for 2.3% of electric generation — 2.3% for wind and 0% and a rounding error for solar. Renewables contributed 10.3% overall, though 6.2% is hydro. Some ‘investment.’”

In Kansas, there is disagreement among elected officials over wind power. Kansas Governor Sam Brownback and U.S. Senator Jerry Moran favor the production tax credit that makes wind feasible. Together they penned an op-ed that tortures logic to defend the tax credits. Each has spoken out on his own on the national stage. See Brownback on wind, again and Wind energy split in Kansas.

Brownback has also supported, at both federal and state levels, renewable portfolio standards. These in effect mandate the production of wind power. Recently Kansas Policy Institute produced a report that details the harmful effect of this law: “Renewable energy is more expensive than conventional energy, so government mandates are necessary to ensure that more renewable energy is purchased. However, the unseen consequences of well-intended efforts to increase energy independence are rarely considered. The authors estimate that by 2020, the average household’s electricity bill will increase by $660, approximately 12,000 fewer jobs will have been created, and business investment in the state will be $191 million less than without the mandate.” See The Economic Impact of the Kansas Renewable Portfolio Standard.

In Wichita, Mayor Carl Brewer is recruiting wind power companies to come to Wichita. If he is successful, you can be sure it will be at great cost to Kansas and Wichita taxpayers.

Contrast with the position taken by U.S. Representative Mike Pompeo, a Republican who represents the Kansas fourth district, which includes the Wichita metropolitan area. Recently he wrote: “Supporters of Big Wind, like President Obama, defend these enormous, multi-decade subsidies by saying they are fighting for jobs, but the facts tell a different story. Can you say ‘stimulus’? The PTC’s logic is almost identical to the President’s failed stimulus spending of $750 billion — redistribute wealth from hard-working taxpayers to politically favored industries and then visit the site and tell the employees that ‘without me as your elected leader funneling taxpayer dollars to your company, you’d be out of work.’ I call this ‘photo-op economics.’ We know better. If the industry is viable, those jobs would likely be there even without the handout. Moreover, what about the jobs lost because everyone else’s taxes went up to pay for the subsidy and to pay for the high utility bills from wind-powered energy? There will be no ribbon-cuttings for those out-of-work families.”

Pompeo has introduced legislation in Congress that would end tax credits for all forms of energy production. See H.R. 3308: Energy Freedom and Economic Prosperity Act.

The Energy Subsidy Tally
Wind and solar get the most taxpayer help for the least production.

President Obama traveled to Iowa Tuesday and touted wind energy subsidies as the path to economic recovery. Then he attacked Mitt Romney as a tool of the oil and gas industry. “So my attitude is let’s stop giving taxpayer subsidies to oil companies that don’t need them, and let’s invest in clean energy that will put people back to work right here in Iowa,” he said. “That’s a choice in this election.”

There certainly is a subsidy choice in the election, but the facts are a lot different than Mr. Obama portrays them. What he isn’t telling voters is how many tax dollars his Administration has already steered to wind and solar power, and how much more subsidized they are than other forms of electricity generation.

Continue reading at the Wall Street Journal (subscription required)

Brownback on wind, again

This week Kansas Governor Sam Brownback again made the case for government spending on a particular industry. The industry is wind power, and the governor made his remarks at a national conference of the wind industry.

The wind industry, with Brownback’s support, wants to extend the production tax credit (PTC) for the production of electrical power by wind. In March Brownback and U.S. Senator Jerry Moran of Kansas wrote an op-ed making the case for extending the PTC. At the conference this week, Brownback called for extending the PTC, although he did support a four-year phaseout.

The PTC pays generators of wind power 2.2 cents per kilowatt-hour produced. To place that in context, a typical Westar customer in Kansas that uses 1,000 kilowatt-hours in the summer pays $95.22 (before local sales tax), for a rate of 9.5 cents per kilowatt-hour. (This is the total cost including energy charge, fuel charge, transmission charge, environment cost recovery rider, property tax surcharge, and franchise fee, according to a March 2010 illustration provided by Westar.) So 2.2 cents is a high rate of subsidy for a product that sells for 9.5 cents.

Brownback and Moran contend that the PTC is necessary to let the wind power industry “complete its transformation from being a high tech startup to becoming cost competitive in the energy marketplace.” The problem with this line of argument is that wind is not an industry in its infancy. The PTC has been in place since 1992, a period of twenty years. If an industry can’t get established in that period, when will it be ready to stand in its own?

The authors also contend that canceling the PTC is, in effect, a “tax hike on wind energy companies.” To some extent this is true — but only because the industry has enjoyed preferential tax treatment that it should never have received, coupled with a misunderstanding of the tax credit mechanism.

The proper way to view the PTC is as a government spending program. That’s the true economic effect of tax credits. Only recently are Americans coming to realize this, and as a result, the term “tax expenditures” is coming into use to accurately characterize the mechanism of tax credits.

Amazingly, Brownback and Moran do not realize this, at least if we take them at their written word when they write: “But the wind PTC is a winning solution because it allows companies to keep more of their own dollars in exchange for the production of energy. These are not cash handouts; they are reductions in taxes that help cover the cost of doing business.” (Emphasis added.)

It is the mixing of spending programs with taxation that leads these politicians to wrongly claim that tax credits are not cash handouts. Fortunately, not everyone falls for this seductive trap. In an excellent article on the topic that appeared in Cato Institute’s Regulation magazine, Edward D. Kleinbard explains:

Specialists term these synthetic government spending programs “tax expenditures.” Tax expenditures are really spending programs, not tax rollbacks, because the missing tax revenues must be financed by more taxes on somebody else. Like any other form of deficit spending, a targeted tax break without a revenue offset simply means more deficits (and ultimately more taxes); a targeted tax break coupled with a specific revenue “payfor” means that one group of Americans is required to pay (in the form of higher taxes) for a subsidy to be delivered to others through the mechanism of the tax system. … Tax expenditures dissolve the boundaries between government revenues and government spending. They reduce both the coherence of the tax law and our ability to conceptualize the very size and activities of our government. (The Hidden Hand of Government Spending, Fall 2010)

U.S. Representative Mike Pompeo of Wichita recognized the cost of paying for tax credit expenditures when he recently wrote: “Moreover, what about the jobs lost because everyone else’s taxes went up to pay for the subsidy and to pay for the high utility bills from wind-powered energy? There will be no ribbon-cuttings for those out-of-work families.” See Mike Pompeo: We need capitalism, not cronyism.

So when Brownback and Moran write of the loss of income to those who profit from wind power, we should remember that these profits do not arise from transactions between willing partners. Instead, they result from politicians like these who are willing to override the judgment of free people and free markets with their own political preferences — along with looking out for the parochial interests of the home state. We need less of this type of wind power.

Five questions with Mike Pompeo

Originally published in The Washington Times. Below, U.S. Representative Mike Pompeo from Wichita explains his opposition to tax credits for all energy production, the problems with over-regulation of business, and the state of the economic recovery. As Decker notes, Pompeo’s stance against energy tax credits, which includes the production tax credit for wind power, is contrary to that of several Kansas politicians, including Kansas Governor Sam Brownback and U.S. Senator Jerry Moran. These have editorialized in favor of tax expenditures to support the wind power industry.

5 Questions with Rep. Mike Pompeo: “We can’t spend our way out of this mess”
By Brett M. Decker
The Washington Times

Rep. Mike R. Pompeo was elected in 2010 by the 4th Congressional District of Kansas. A native of Wichita and graduate of the United States Military Academy at West Point, he patrolled the Iron Curtain as an Army officer before the Berlin Wall came down in 1989. After leaving active duty, Mr. Pompeo attended Harvard Law School, where he was as an editor of the Harvard Law Review. Before running for office, he managed two small businesses. He founded Thayer Aerospace, which grew to employ more than 400 workers, and was president of Sentry International, a company that manufactures oilfield equipment. You can find out more about the congressman’s work at: pompeo.house.gov.

Decker: You have authored a bill to eliminate all energy tax credits. That can’t be popular for a congressman from a corn state. What’s so important about your legislation that it is worth ticking off constituents back home?

Pompeo: The federal government has been a proven failure in picking winners and losers in the energy sector. Democrats and Republicans alike have used our tax code to reward their favorite energy sources — that is, ones in their home district — with tax loopholes. This causes every American taxpayer to subsidize those industries and causes consumers to pay higher prices for energy. This results in terrible energy policy and even worse tax policy. More importantly, taxpayers are getting hammered both coming (higher taxes) and going (higher energy costs).

My bill, the Energy Freedom and Economic Prosperity Act (HR 3308), would eliminate all energy tax subsidies from our Internal Revenue Code and turn that savings toward lowering our corporate tax rate to foster job growth here in America. The bill is revenue neutral and supported by every major conservative group, such as: Americans for Prosperity, Americans for Tax Reform, Club for Growth, Council for Citizens Against Government Waste, Freedom Action, Heritage Action, National Taxpayers Union, 60 Plus Association and Taxpayers for Common Sense. It gets rid of every tax credit related to energy; it favors no company, no person and no energy source. It treats them all equally. That is the American way.

When I’m at home, Kansans tell me they want honest and serious leadership from their elected representatives, not the business-as-usual policies that got us into this economic mess. I am working hard to provide solutions to meet a most pressing goal: preserving our way of life for our kids and grandkids.

Decker: I understand that you would use savings from the elimination of energy subsidies to lower the corporate tax rate. How would that work and why is it necessary?

Pompeo: My goal in getting rid of tax loopholes is not to raise taxes. Our problem in Washington, D.C. is not a revenue problem, it is a spending problem. My goal is to make the tax code fairer and flatter and reward energy sources that lower costs for consumers. So, any increase in taxes that occurs because these tax goodies are eliminated will be offset by lower taxes for every single business in America. My bill would mean fewer tax loopholes for the powerful and the connected, and lower tax rates for everyone willing to take risk and engage in American commerce. This is the perfect combination and the way our tax code needs to be reformed. The Energy Freedom and Economic Prosperity Act does this in one small place — the realm of energy tax credits — and it provides a model for the broader tax reform that will set our nation on a prosperous course for decades to come.

Sen. Jim DeMint [of South Carolina] has sponsored a companion provision which garnered the support of a majority of the Republican Conference, including Minority Leader Mitch McConnell [of Kentucky], during a recent vote on the Senate Floor. In the House, my bill enjoys the support of strong conservatives, including Budget Committee Chairman Paul Ryan [of Wisconsin]. I believe there is a growing consensus that my bill represents a free-market model for how to enact real, comprehensive tax reform.

Decker: Before coming to Washington last year, you spent your career in the private sector, including building a successful aerospace company from the ground up. I have had many job creators tell me that if they had to start all over again that creating their own company would no longer be worth all the hassle, harassment and heartache. What are the most damaging government hindrances to entrepreneurs today?

Pompeo: I’d start a business again in a heartbeat. Indeed, I hope that one day I may get the chance to do so when my mission here in Washington, D.C. is complete.

It is true that President Obama has unleashed a slew of regulations upon small business. I struggled against that regulatory burden firsthand while running a company in Kansas. It is difficult to create jobs when you face an overwhelming tax burden, as well as countless compliance and reporting rules. I’ve been there. I’ve grappled with these issues while keeping the lights on and making payroll. That’s why we need to roll back government interference and grow our economy so people can find jobs. The energy sector is a perfect example where the Obama administration’s actions are harming both businesses and consumers. Having run a small business that provided oil and gas exploration equipment to domestic energy producers, I have seen this firsthand. Why, for example, has this president’s Environmental Protection Agency attacked with intent to destroy the coal industry that provides over 50 percent of all American power? Layer upon layer of regulations aimed at — in the president’s own words — “bankrupting” that industry. Why, for example, has this president put 10 (ten!) agencies on the beat to regulate hydraulic fracturing — a process that has been effectively regulated by states for decades with a tremendous safety record.

These are the reasons some entrepreneurs are reluctant to start businesses and take risks. We can do better, we can create jobs in America, and I am confident the next administration will.

Decker: Every time I sit down with a business leader, I get an earful about 2002’s Sarbanes-Oxley Act that dramatically altered federal accounting regulations and 2010’s Dodd-Frank Act to supposedly reform Wall Street. Should these laws be repealed? Why or why not?

Pompeo: I’ve heard a great deal more about Dodd-Frank than I have Sarbanes-Oxley from Kansans. Both laws have had very significant and negative consequences for our economy. I support the repeal of Dodd-Frank in its entirety. Its goal to protect taxpayers from failures of the nation’s largest financial institutions is not accomplished and, instead, has negatively impacted community and regional banks along with their customers. It has also created yet another “do-good” organization, the Consumer Financial Protection Board. The CFPB will not protect consumers. Instead, it will add to the cost for every hardworking taxpayer who seeks to purchase a home with a mortgage or who wants to engage in other banking activity. Once again, the federal government, in its effort to protect citizens, fails in its mission and instead creates a bureaucracy that eclipses any good that might have been sought.

Decker: The Obama administration talks an awful lot about an economic recovery, yet the unemployment rate is still sky high, record numbers of Americans are on food stamps and the national debt continues to mount due to runaway federal spending. What does such an anemic recovery say about the real state of our economy?

Pompeo: This very weak data shows this is not a recovery that will truly provide the jobs and opportunity our nation must have and the next generation deserves. The $831 billion “economic stimulus,” passed into law in 2009, dug the hole deeper and did not accomplish what the president said it would – keeping unemployment below 8 percent. This should come as no surprise. Businesses have no interest in hiring new employees in this environment of higher taxes, regulatory uncertainty and the staggering costs of Obamacare. Republicans were swept into power in 2010 because Americans saw our solutions for recovery: less spending, less government and less regulation. All of these things are what will kick-start our recovery. We can’t spend our way out of this mess. That’s been tried and it failed. The real economy, private-sector job growth, will return when leaders in Washington, D.C. recognize what Kansans already know: The solutions are not to be found in ever-expanding government. The solutions are found through freedom, liberty, innovation and rewarding earned success.

Pompeo: Ending tax credits for energy doesn’t violate pledge

In a news conference last week, U.S. Representative Mike Pompeo of Wichita and two others criticized President Barack Obama for misunderstanding of the meaning of a taxpayer protection pledge that Pompeo has signed.

The pledge is the famous pledge advanced by Grover Norquist of Americans for Tax Reform, where signers pledge not to increase taxes. The “tax increase” the president refers to are various tax credits that benefit some forms of energy production, particularly wind and solar power. Norquist, along with Senator Jim DeMint of South Carolina, participated in the conference.

Pompeo said the president “called out” those who signed the ATR pledge, specifically arguing that allowing the wind production tax credit (PTC) to expire would be a violation of the pledge. The ATR taxpayer protection pledge is to “One, oppose any and all efforts to increase the marginal income tax rates for individuals and/or businesses; and two, oppose any net reduction or elimination of deductions and credits, unless matched dollar for dollar by further reducing tax rates.”

Pompeo has introduced legislation in the House of Representatives that would end tax credits on all forms of energy production. By itself, that might be a violation of the pledge. The bill, however, specifies that the savings from the elimination of the spending on tax credits would be used to lower the corporate income tax rate. The use of the savings to reduce tax rates is in agreement with the second plank of the ATR pledge.

Pompeo’s bill is H.R. 3308: Energy Freedom and Economic Prosperity Act. This bill is currently in committee. Sen. DeMint introduced an amendment to a Senate bill that would have accomplished the same, but the amendment received only 26 votes. Pompeo characterized this as an advance, as just a few years ago, he said such a bill or amendment would have received only a few votes. But this received the votes of a majority of Republican members of the Senate, including that of minority leader Mitch McConnell.

In his remarks, DeMint said that while the president talks about eliminating corporate loopholes, he is hypocritical in his criticism of this legislation. If Congress could eliminate the tax credits — loopholes — for big oil and all energy and lower tax rates for all, it would be “a model for what we could do across our whole tax code.”

Norquist emphasized the temporary nature of many loopholes or tax advantaged treatment added to the tax code. These are usually pitched as temporary measures, needed because the policy goal is good, the industry is in its infancy, and it needs temporary help. But as in the case of the wind PTC, these special advantages are often extended or made permanent.

The issue of special tax treatment for the oil and gas industry arose. Norquist said that these tax considerations almost always fall into the categories of depreciation and expensing, which are available to all industries. He said if these are available to General Electric and Wal-Mart, they should also be available to all industries, including oil and gas.

Not everyone, including all conservatives, agree that tax credits are a form of spending implemented through the tax code. Recently Kansas Governor Sam Brownback and U.S. Senator Jerry Moran of Kansas made the case for extending the production tax credit for the production of electrical power by wind. See Wind tax credits are government spending in disguise.

In their op-ed, the Kansans argued the PTC is necessary to let the wind power industry “complete its transformation from being a high tech startup to becoming cost competitive in the energy marketplace.” As the PTC has been in effect is 1992, a period of 20 years, Norquist’s warning about the temporary nature of these programs is relevant.

The proper way to view the PTC is as a government spending program, recognizing the true economic effect of tax credits. Only recently are Americans coming to realize this, and as a result, the term “tax expenditures” is coming into use to accurately characterize the mechanism of tax credits. Canceling this spending is what would let tax rates be reduced, according to Pompeo’s proposed legislation.

Amazingly, Brownback and Moran do not realize this, at least if we take them at their written word when they write: “But the wind PTC is a winning solution because it allows companies to keep more of their own dollars in exchange for the production of energy. These are not cash handouts; they are reductions in taxes that help cover the cost of doing business.” (Emphasis added.)

Wind tax credits are government spending in disguise

Recently Kansas Governor Sam Brownback and U.S. Senator Jerry Moran of Kansas made the case for extending the production tax credit (PTC) for the production of electrical power by wind.

The PTC pays generators of wind power 2.2 cents per kilowatt-hour produced, a high rate of subsidy for a product that sells for 9.5 cents, according to a March 2010 illustration provided by Westar.

Brownback and Moran contend that this tax credit is necessary to let the industry “complete its transformation from being a high tech startup to becoming cost competitive in the energy marketplace.” But wind is not a new industry. The PTC has been in place for twenty years. If an industry can’t get established in that period, when will it be ready to stand in its own?

The authors also contend that canceling the PTC will result in a “tax hike on wind energy companies.” To some extent this is true — but only because the industry has enjoyed preferential tax treatment that it should never have received.

The proper way to view the PTC is as a government spending program in disguise. That’s the true economic effect of tax credits. They are equivalent to grants of money.

Amazingly, Brownback and Moran do not realize this — at least if we take them at their written word as they describe the PTC: “These are not cash handouts; they are reductions in taxes that help cover the cost of doing business.” (Emphasis added.)

It is the mixing of spending programs with taxation that leads these politicians to wrongly claim that tax credits are not cash handouts. But not everyone falls for this seductive trap. In an article in Cato Institute’s Regulation magazine, Edward D. Kleinbard explains:

Specialists term these synthetic government spending programs “tax expenditures.” Tax expenditures are really spending programs, not tax rollbacks, because the missing tax revenues must be financed by more taxes on somebody else. … Tax expenditures dissolve the boundaries between government revenues and government spending. They reduce both the coherence of the tax law and our ability to conceptualize the very size and activities of our government. (The Hidden Hand of Government Spending, Fall 2010)

U.S. Representative Mike Pompeo of Wichita recognized the cost of paying for tax credit expenditures when he recently wrote: “Moreover, what about the jobs lost because everyone else’s taxes went up to pay for the subsidy and to pay for the high utility bills from wind-powered energy? There will be no ribbon-cuttings for those out-of-work families.”

This is an example of the seen and unseen, where thinking is confined only to what is easily seen. Many years ago Frederic Bastiat explained this problem in his famous parable of the broken window. More recently the school of public choice economics has warned us the problem of concentrated benefits and dispersed costs. Politicians hope we won’t notice.

When Brownback and Moran write of the loss of income to those who profit from wind power, we should remember that these profits do not arise from transactions between willing partners. Instead, they result from politicians who override the judgment of free people and free markets with their own political preferences — along with looking out for the parochial interests of the home state. We need less of this type of wind power.

Brownback, Moran wrong on wind tax credits

In the following commentary, Kansas Governor Sam Brownback and U.S. Senator Jerry Moran of Kansas make the case for extending the production tax credit (PTC) for the production of electrical power by wind.

The PTC pays generators of wind power 2.2 cents per kilowatt-hour produced. To place that in context, a typical Westar customer in Kansas that uses 1,000 kilowatt-hours in the summer pays $95.22 (before local sales tax), for a rate of 9.5 cents per kilowatt-hour. (This is the total cost including energy charge, fuel charge, transmission charge, environment cost recovery rider, property tax surcharge, and franchise fee, according to a March 2010 illustration provided by Westar.) So 2.2 cents is a high rate of subsidy for a product that sells for 9.5 cents.

The authors contend that the PTC is necessary to let the wind power industry “complete its transformation from being a high tech startup to becoming cost competitive in the energy marketplace.” The problem with this line of argument is that wind is not an industry in its infancy. The PTC has been in place since 1992, a period of twenty years. If an industry can’t get established in that period, when will it be ready to stand in its own?

The authors also contend that canceling the PTC is, in effect, a “tax hike on wind energy companies.” To some extent this is true — but only because the industry has enjoyed preferential tax treatment that it should never have received, coupled with a misunderstanding of the tax credit mechanism.

The proper way to view the PTC is as a government spending program. That’s the true economic effect of tax credits. Only recently are Americans coming to realize this, and as a result, the term “tax expenditures” is coming into use to accurately characterize the mechanism of tax credits.

Amazingly, Brownback and Moran do not realize this, at least if we take them at their written word when they write: “But the wind PTC is a winning solution because it allows companies to keep more of their own dollars in exchange for the production of energy. These are not cash handouts; they are reductions in taxes that help cover the cost of doing business.” (Emphasis added.)

It is the mixing of spending programs with taxation that leads these politicians to wrongly claim that tax credits are not cash handouts. Fortunately, not everyone falls for this seductive trap. In an excellent article on the topic that appeared in Cato Institute’s Regulation magazine, Edward D. Kleinbard explains:

Specialists term these synthetic government spending programs “tax expenditures.” Tax expenditures are really spending programs, not tax rollbacks, because the missing tax revenues must be financed by more taxes on somebody else. Like any other form of deficit spending, a targeted tax break without a revenue offset simply means more deficits (and ultimately more taxes); a targeted tax break coupled with a specific revenue “payfor” means that one group of Americans is required to pay (in the form of higher taxes) for a subsidy to be delivered to others through the mechanism of the tax system. … Tax expenditures dissolve the boundaries between government revenues and government spending. They reduce both the coherence of the tax law and our ability to conceptualize the very size and activities of our government. (The Hidden Hand of Government Spending, Fall 2010)

U.S. Representative Mike Pompeo of Wichita recognized the cost of paying for tax credit expenditures when he recently wrote: “Moreover, what about the jobs lost because everyone else’s taxes went up to pay for the subsidy and to pay for the high utility bills from wind-powered energy? There will be no ribbon-cuttings for those out-of-work families.” See Mike Pompeo: We need capitalism, not cronyism.

So when Brownback and Moran write of the loss of income to those who profit from wind power, we should remember that these profits do not arise from transactions between willing partners. Instead, they result from politicians like these who are willing to override the judgment of free people and free markets with their own political preferences — along with looking out for the parochial interests of the home state. We need less of this type of wind power.

Strengthening our Nation’s Domestic Energy Supply

By Kansas Governor Sam Brownback and U.S. Senator Jerry Moran of Kansas.

The increasing cost of conducting business in the United States threatens innovation and investment in new technologies. In today’s unstable business environment, American industries are understandably reluctant to invest the time and resources necessary to grow their businesses. This is especially true for domestic energy production.

Energy production is one of the most highly regulated markets in the United States today. Government policies are hurting our country’s ability to compete within the global economy, limiting our domestic energy supply and driving up the cost of energy for consumers. To ensure Kansans have access to a reliable and affordable supply of energy, we must develop more of our nation’s natural resources.

One resource that is plentiful in Kansas is wind. Our state has the second highest wind resource potential in our country and leads the nation in wind production capacity currently under construction. If we expect the wind energy industry to provide for our country’s future energy needs and make long-term investments in their businesses, Congress must reauthorize the wind production tax credit (PTC) that expires this year. By extending the wind PTC, Congress will allow the wind industry to complete its transformation from being a high tech startup to becoming cost competitive in the energy marketplace. Failure to do so will result in a tax hike on wind energy companies and will only further delay this industry’s ability to compete.

There are those who view government intervention in the energy sector as picking winners and losers. But the wind PTC is a winning solution because it allows companies to keep more of their own dollars in exchange for the production of energy. These are not cash handouts; they are reductions in taxes that help cover the cost of doing business. Unlike President Obama’s failed stimulus plan that rewards individual, unproven companies like Solyndra with cash handouts, the wind PTC is an industry tax credit that has led to $20 billion in annual private investment in our energy infrastructure.

Today, the American wind industry includes more than 400 manufacturing facilities in 43 states. In 2005, just 25 percent of the value of a wind turbine was produced in the United States compared to more than 60 percent today. Because of their close proximity to wind farms, American workers can produce the critical components at a lower cost than their European and Asian counterparts. As more components are manufactured in the United States and not overseas, the cost to produce electricity from wind farms will be further driven down.

If the wind PTC is allowed to expire, local economies across our state will suffer. Kansas counties will lose $3.7 million in annual payments from wind companies. Kansas landowners will lose nearly $4 million annually in additional income they earn from leasing or selling their land for wind farms. And every Kansan will ultimately be affected because the power generated by these wind facilities contributes to our supply of electricity. By eliminating additional sources of electricity, utility rates will climb.

To meet our country’s energy needs and remain competitive in the global market, Congress must develop a national energy policy. Recent events in the Middle East have demonstrated once again the importance of having access to an ample domestic energy supply so we are less dependent on foreign sources. If Congress fails, Kansans will soon be paying much higher energy prices — for the gas to fill up our cars, for the fuel to power our farm equipment, and for the electricity to turn on our lights.

Temporarily extending the wind PTC is not about picking winners and losers — it is about preparing our country to meet our growing energy demand. Rather than make it more difficult for the private sector to develop energy sources, we should lower taxes, reduce regulations, and allow the private sector to succeed in the free market. In turn, the wind industry will grow and become fully competitive — no longer needing the wind PTC. By strengthening American energy production, our country’s future will be stronger and more secure.

Wind energy split in Kansas

Despite the promise as a temporary subsidy when it started twenty years ago, wind energy is reliant on government handouts. Today’s Wall Street Journal brings this into focus, writing: “The truth is that those giant wind turbines from Maine to California won’t turn without burning through billions upon billions of taxpayer dollars. In 2010 the industry received some $5 billion in subsidies for nearly every stage of wind production.” (See Republicans Blow With the Wind: Another industry wants to keep its taxpayer subsidies..)

The piece also properly refutes the argument that oil and gas receives the same type of tax credits as does wind and other renewable energy forms. “The most dishonest claim is that wind and solar deserve to be wards of the state because the oil and gas industry has also received federal support. That’s the $4 billion a year in tax breaks for oil and gas (which all manufacturers receive), but the oil and gas industry still pays tens of billions in federal taxes every year.” There’s a difference between tax deductions, which reduce taxable income, and tax credits, which are government spending programs in disguise.

Despite this: Senator Jerry Moran of Kansas has joined with five other senators in urging the Senate to pass an extension of the subsidy program for wind power. Kansas, it should be noted, has a lot of wind. Our former governors Sebelius and Parkinson bought into the green energy fantasy, and current governor Kansas Governor Sam Brownback agrees, having penned op-eds in support of wind energy subsidy programs and usage mandates. Wichita Mayor Carl Brewer has been busy promoting Wichita as a site for wind energy-related industry, despite its failing economics based on government handouts.

(By the way, it’s not only wind that is receiving subsidy on Kansas. Recently the Department of Energy announced the award of a $132.4 million loan guarantee to a cellulosic ethanol plant in southwest Kansas. At the time of the award, no commercial cellulosic ethanol had been produced in America. See Kansas and its own Solyndra.)

Contrast this with U.S. Representative Mike Pompeo of Wichita, who has introduced legislation to end all tax credits related to energy production. Writes the Journal: “Here’s a better idea. Kill all energy subsidies– renewable and nonrenewable, starting with the wind tax credit, and use the savings to shave two or three percentage points off America’s corporate income tax. Kansas Congressman Mike Pompeo has a bill to do so. This would do more to create jobs than attempting to pick energy winners and losers. Mandating that American families and businesses use expensive electricity doesn’t create jobs. It destroys them.”

Republicans Blow With the Wind

Another industry wants to keep its taxpayer subsidies.

Congress finally ended decades of tax credits for ethanol in December, a small triumph for taxpayers. Now comes another test as the wind-power industry lobbies for a $7 billion renewal of its production tax credit.

The renewable energy tax credit — mostly for wind and solar power — started in 1992 as a “temporary” benefit for an infant industry. Twenty years later, the industry wants another four years on the dole, and Senator Jeff Bingaman of New Mexico has introduced a national renewable-energy mandate so consumers will be required to buy wind and solar power no matter how high the cost.

The truth is that those giant wind turbines from Maine to California won’t turn without burning through billions upon billions of taxpayer dollars. In 2010 the industry received some $5 billon in subsidies for nearly every stage of wind production.

Continue reading at the Wall Street Journal (subscription required)

Kansas Senator Jerry Moran wants to pick losers in the market: His choice is big wind

In Kansas, we have a lot of wind — no doubt about that. But the economics of wind as a source of electricity generation is another matter. There’s a split in Kansas over this. On one side are Kansas Governor Sam Brownback, who has been vocal in his support of wind power, along with Wichita Mayor Carl Brewer, who has been busy promoting Wichita as a site for wind energy-related industry. Now we see Kansas’ newest U.S. Senator Jerry Moran jumping in to promote the wind power subsidy program. Contrast this with U.S. Representative Mike Pompeo of Wichita, who has introduced legislation to end all tax credits related to energy production. It’s important to remember that the government subsidy program for wind power is in the form of tax credits, which are equivalent to grants by the government. The term “tax expenditures” is starting to see widespread usage to accurately describe the economic effect of tax credits.

Senator Jerry Moran wants to pick losers in the market: His choice is big wind

By Daniel Horowitz

If I were pressed to offer one anecdote exemplifying our failure to elect consistent conservatives to Congress last November, the story of Senator Jerry Moran and Big Wind would be at the top of the list.

In 2010, then-Congressman Jerry Moran beat former Congressman Todd Tiahrt for the Republican nomination for Senate in Kansas running as a red meat conservative. He easily won the seat in this solid Republican state and summarily joined the ‘Tea Party Caucus’ in the Senate. Nothing emblematizes the convictions of the Tea Party more than its fervent opposition to special interest handouts and government interventions in the private sector as a way of picking winners and losers. Yet, Senator Moran let the cat out of the bag last week that he has absolutely no compunction about picking winners and losers, or in the case of Big Wind, big losers.

Last week, Senator Moran announced that he is submitting an amendment to the terrible Senate highway bill (S.1813) that would extend the 2.2 cent/ per kilowatt-hour Production Tax Credit (PTC) for another 4 years. This special interest handout to Solar and Wind is slated to expire at the end of the year. What happened to Moran’s Tea Party views? Well, he unabashedly threw them under the solar-powered bus:

Asked about opposition to extending the credit expressed by Rep. Mike Pompeo of Wichita, Moran said: “There are members of Congress who feel we ought not to pick winners and losers, to let the markets decided. I believe it’s better to get this industry up and running, then let the country decide … rather than pull the rug out overnight.”

Wow! At least he’s honest. I wish we had known that before the election.

The PTC is the corporate version of the Earned Income Credit for green energy. It is among 51 ‘tax extenders’ that have either expired last December or are slated to expire this December. The PTC offers a 2.2 cent/per kilowatt-hour refundable credit for wind, solar, or geothermal. According to the Heritage Foundation, if the oil industry received a commensurate subsidy, they would get a $30 check for every barrel produced.

Headed into the November elections, one of our most potent and popular arguments we have is to paint the Democrats with the Solyndra economy — an economy where the government intervenes to pick winners and losers, at the detriment of consumers and taxpayers. How can we effectively articulate an alternative free-market vision when we have a member of “the Tea Party Caucus” supporting Obama’s policy of picking losers in the energy sector? Talk about pale pastels!

Folks, this is not how we win elections. Moreover, this type of special interest peddling — from energy subsidies to farm welfare — creates dependency in some of the reddest states. This is not a winning message for the future of conservatism, especially when it emanates from such a Republican state.

There is a better way. Congressman Mike Pompeo (R-KS) introduced legislation (HR 3308) to sunset all targeted energy tax credits and grants, including those for fossil fuels and nuclear power. The bill would use the savings from the repeal of these credits (roughly $90 billion over ten years) to lower the corporate tax rate on everyone. Senator DeMint has introduced a companion bill in the Senate (S.2064).

Every member of Congress who seeks a clean break from a centrally-planned Solyndra economy must cosponsor this bill. Additionally, as we look for more congressional candidates to endorse, it is these issues — energy and farm subsidies — that will separate the men from the boys. We must fight this election by offering voters a choice, not an echo.

Cross-posted from The Madison Project

An ill wind blows in Kansas: The politics of renewable energy

Kansas Representative Charlotte O’Hara, who represents Kansas House District 27 in southern Johnson County, offers a look at the politics surrounding wind power in Kansas. Besides O’Neal, other prominent supporters of renewable energy in Kansas include Kansas Governor Sam Brownback, who has been vocal in his support of wind power. So too has been Wichita Mayor Carl Brewer, who has been busy promoting Wichita as a site for wind energy-related industry. Contrast this with U.S. Representative Mike Pompeo of Wichita, who has introduced legislation to end all tax credits related to energy production.

An ill wind blows in Kansas: The politics of renewable energy

By Kansas Representative Charlotte O’Hara

The world of Topeka politics continue to amaze, frustrate, entertain and humor me in my second year of representing the 27th District. Case in point:

On Tuesday of this week during the Republican Caucus discussion of HB 2446 (concerning the expansion of definition of alternative energy to include storage facilities/devices) this fact came to light: The Kansas Legislature, in 2009, passed the Renewable Energy Standards Act (KSA 66-1258), which requires 10 percent of our power companies’ capacity to be from renewable energy sources by 2011, 15 percent in 2016 and 20 percent in 2020.

So, being the conservative that I am, I suggested an amendment that would freeze renewable energy standards to the current 10 percent. Rep. Dennis Hedke carried the amendment on the floor. The amendment received 43 votes.

Only 43 out of 125 representatives voted to stop strangling the Kansas economy and burdening consumers with high energy costs of these draconian requirements. According to the Heritage Foundation, just a 15% renewable energy mandate would increase electricity prices for consumers by as much as 11.3 percent!

After the defeat of the amendment, Rep. Forrest Knox introduced an amendment that would tie the freeze to licensing of the Holcomb Power Plant, which currently has been stopped by federal court and another environmental impact study has been ordered. The Knox amendment received 65 votes, a majority. However Speaker of the House Mike O’Neal (who voted against both amendments) interceded and referred the amended bill, HB 2446, back to committee (with the approval of the House members) and removing it from final action.

So, why would Speaker O’Neal oppose a freeze at the current 10% on the Kansas Renewable Standard Act? Well, let’s see. Could it possibly be that these required increased standards in Kansas law is why Siemens chose Hutchinson (O’Neal’s district) in 2009 to locate a $35 million wind turbine plant? Is this the type of crony capitalism we want to build our economic future on in Kansas?

Another wrinkle in the future of renewable energy is that extension of federal tax credits is in doubt. Those credits currently subsidize renewables by 2.1 cents per kw. Without the federal, state and local tax incentives, abatements and exemptions, the economics of renewable energy collapses.

Here is a link to Heritage Foundation on this issue of renewable energy subsidies: No More Energy Subsidies: Prevent the New, Repeal the Old.

It always puzzles me why after the fall of the Soviet Union, government mandated / subsidized / incentivized industries continue to flourish in the U.S. and, in particular, here in our own Kansas backyard.

So, if you would like to register your concerns about the Speaker’s action to circumvent final action on HB 2446, which as amended would freeze Kansas Renewable Energy Act requirement at 10 percent and stop it from going to 20 percent, call his office: 785-296-2302 or e-mail at Mike.ONeal@house.ks.gov

Kansas and Wichita quick takes: Friday December 9, 2011

Ethanol subsidy. According to Wichita Eagle reporting, the head of an ethanol trade group says the subsidy for ethanol will likely disappear after January 1, but the change might be good for the industry. It has to do with image, said the speaker. The subsidy the speaker mentioned is in the form of a tax credit, and is one of the programs that would be eliminated by proposed legislation introduced by U.S. Rep. Mike Pompeo of Wichita. His bill would end tax credits for all forms of energy. … The production tax credit is just one of three government interventions that benefit ethanol. Besides the tax credit, we should also ask for the end of mandates for ethanol use, and an end to the tariff on imported ethanol. We also need to ask for the end of interventions aimed at benefiting the cellulosic ethanol industry, like the $132.4 million loan guarantee for such a plant in Kansas.

Cronyist Warren Buffet. “Warren Buffett’s MidAmerican Energy Holdings company has agreed to buy a giant, 550-megawatt photovoltaic farm currently under construction in San Luis Obispo County for $2 billion, giving a huge boost to the solar industry that could spur investment by other major players.” Concludes John Hinderaker of Powerline Blog: “Meanwhile, I am warming up to the idea that Warren Buffett should pay more in taxes. I would settle for just getting his federal subsidies back.” More at Crony Capitalism, Episode #…What Are We Up To Now?

Natural gas subsidies for Pickens. While on the topic of energy and harmful subsidies, Timothy P. Carney of the Washington Examiner provides an update on H.R. 1380: New Alternative Transportation to Give Americans Solutions Act of 2011, or NATGAS act. The bill provides a variety of subsidies, implemented through tax credits, to producers and users of natural gas. The goal is to promote the use of natural gas as the fuel the nation uses for transportation. … Carney explains the personal financial of the bill’s backer, energy investor T. Boone Pickens. He holds options on 15 million shares of a company known as Clean Energy Fuels. These options expire on December 28th, and their value would skyrocket if the NATGAS bill can pass by then. … Carney notes the opposition to this bill from Wichita-based Koch Industries. As a large producer of fertilizer, the price of a key input — natural gas — would likely increase if NATGAS passes. But we all ought to worry about increases in the price of fertilizer, which would like lead to higher grocery prices. These price increases harm low income families hardest.

Planning grant to be topic of meeting. On Monday December 12th Americans for Prosperity Foundation will feature Sedgwick County Commission Member Richard Ranzau speaking on the topic “The $1.5 million dollar Regional Economic Area Partnership (REAP) HUD Sustainable Development Planning Grant: Economic Development or Economic Destruction?” Some background on this item may be found at Sedgwick County considers a planning grant. This free event is from 7:00 pm to 8:30 pm at the Lionel D. Alford Library located at 3447 S. Meridian in Wichita. The library is just north of the I-235 exit on Meridian. For more information on this event contact John Todd at john@johntodd.net or 316-312-7335, or Susan Estes, AFP Field Director at sestes@afphq.org or 316-681-4415.

Tilting at wind turbines. “Switching from conventional sources of electricity like coal and natural gas to renewables like wind and solar, our elected leaders tell us, will reduce pollution, advance renewable technology and spark a green jobs revolution. Is renewable energy really a green pathway to a brighter economic future? Or is it nothing more than a heavily subsidized impossible dream?” Reason TV takes a look at wind energy in the video Tilting at Wind Turbines: Should the Government Subsidize Renewable Energy? Locally, Wichita Mayor Carl Brewer promotes manufacturing of wind power machinery as good for Wichita’s economic development, and Kansas Governor Sam Brownback supports renewable energy standards for Kansas.

Pompeo to introduce ‘Energy Freedom and Economic Prosperity Act’

This week U. S. Representative Mike Pompeo of Wichita plans to introduce the “Energy Freedom and Economic Prosperity Act,” a bill that would eliminate all tax credits related to energy.

Tax credits, sometimes called tax expenditures, are spending accomplished through the tax code rather than by legislative appropriations. Two prominent tax credits related to energy production are the tax credit for producing and blending ethanol with gasoline, and the production tax credit for wind and solar power production. These industries have claimed that the tax credits are necessary for these forms of energy to be economically viable.

Pompeo’s office estimates that the bill could save up to $90 billion in tax expenditures over the next ten years. The legislation proposes that these savings be used to reduce the corporate income tax rate.

The subsidies that would be repealed include, according to Pompeo’s office: Plug-In electric and fuel cell vehicles, Alternative fuel and alternative fuel mixtures, Cellulosic Biofuel Producer Credit, Alternative fuel infrastructure, Production Tax Credit for electricity produced from renewable sources, including wind, biomass, and hydropower, Investment Tax Credit for equipment powered by solar, fuel cells, geothermal or other specified renewable sources, Enhanced oil recovery credit, and credit for producing oil and gas from marginal wells, Advanced Nuclear Power Generation Credit, and Clean coal investment credits.

This bill targets tax credits only. Loans and loan guarantees are not a subject. This bill would not affect the programs that funded Solyndra, a high-profile example of failure. This bill would not affect the $132.4 million loan guarantee recently given to a cellulosic ethanol plant in southwest Kansas, either.

Pompeo’s office stresses that this is not a bill targeted at renewable forms of energy like ethanol and wind. It affects all tax credits, including those that are directed at the nuclear, coal, and oil and gas. The goal is to get government out of the energy sector and let markets direct energy investment.

This bill represents a continued effort by Pompeo to reduce government intervention and to give more freedom to markets. Politically, it puts him at odds with many in this state who favor expansion of wind energy in Kansas. In particular, Kansas Governor Sam Brownback is a proponent of wind power and ethanol. Wichita Mayor Carl Brewer is also promoting Wichita as a place for wind power companies to locate.

Kansas Governor Sam Brownback on wind energy

Recently Kansas Governor Sam Brownback wrote an editorial praising the benefits of wind power. (Gov. Sam Brownback: Wind offers clean path to growth, September 11, 2011 Wichita Eagle) Brownback has also been supportive of another form of renewable energy, ethanol.

But not everyone agrees with the governor’s rosy assessment of wind power. Paul Chesser of American Tradition Institute offers a rebuttal of Brownback’s article, which first appeared in a Bloomberg publication.

Chesser writes: “Apparently Gov. Brownback has overlooked the horrid results of efforts in recent years to spur the economy and employment with government renewable energy ‘stimulation’ from taxpayer dollars. … The lessons of failure with government mandates in pursuit of a renewable energy economy are not hard to find.”

Chesser goes on to describe ATI’s study which illustrates the negative economic consequences of renewsable energy standards, which Brownback has supported. The study is The Effects of Federal Renewable Portfolio Standard Legislation on the U.S. Economy.

Following is Chesser’s response to Governor Brownback.

Kansas Gov., Former Sen. Brownback Incorrect on Promise, Economics of Renewable Energy

By Paul Chesser

American Tradition Institute today called attention to the many fallacies in a column written by Kansas Gov. Sam Brownback and published yesterday in the Bloomberg Government newsletter (subscription required), in which the former U.S. Senator touted the “long-term benefits” and “job creation” ability of renewable energy, predominantly with wind power.

Apparently Gov. Brownback has overlooked the horrid results of efforts in recent years to spur the economy and employment with government renewable energy “stimulation” from taxpayer dollars. He wrote for Bloomberg, “Experience has taught us that investments in the renewable energy economy is creating jobs across all employment sectors, including construction, engineering, operations, technology and professional services, in both rural and urban communities.”

“Unlike most of his fellow Republicans, it sounds like the governor continues to support President Obama’s failed initiatives to create ‘Green jobs’ in a hopeless attempt to save the U.S. economy,” said Paul Chesser, executive director of American Tradition Institute.

Continue reading at ATI Release: Kansas Gov., Former Sen. Brownback Incorrect on Promise, Economics of Renewable Energy.

Clusters as economic development in Kansas

Is the promotion by Kansas government of industry clusters as economic development good for the future of Kansas?

The formula for creating these clusters is always the same: Pick a hot industry, build a technology park next to a research university, provide incentives for businesses to relocate, add some venture capital and then watch the magic happen. But, as I have noted before, the magic never happens. Most of the top-down cluster-development projects in the United States and around the world have died a slow death in relative obscurity. Politicians who held the press conferences to claim credit for advancing science and technology are long gone. Management consultants have cashed in their big checks. Real estate barons have reaped fortunes, and taxpayers are left holding the bag.

The author is Vivek Wadhwa, writing in the Washington Post article Industry clusters: The modern-day snake oil.

Wadwha is criticizing Harvard professor Michael Porter’s cluster theory, which he says has to do with how “geographic concentrations of interconnected companies, specialized suppliers, and service providers gave certain industries a productivity and cost advantage.” Wardwha describes the magical potential: “[Porter's] legions of followers postulated that by bringing these ingredients together into a ‘cluster,’ regions could artificially ferment innovation. They just needed to build the right infrastructure and bring together chosen industries.”

It’s something that Wichita and Kansas has embraced. We hear — continually — about the importance of the aviation cluster in south-central Kansas and its importance to our state’s economy. Talk of this becomes particularly intense each time the major aviation companies and their suppliers approach local governments for handouts in the form of economic development incentives.

Wichita Mayor Carl Brewer wants to create a cluster of wind energy companies in and around Wichita, and he has traveled as far as Germany in this quest.

Kansas Governor Sam Brownback has embraced the cluster concept. In June, Governor Brownback promoted one such cluster, saying “As a state, we must formulate strategies to achieve a successful economic cluster around the animal health sector.”

Other clusters the state wants to promote include life sciences, tourism, and, as aleady mentioned, aviation. Brownback has held summits on most of these topics. A presentation titled Kansas Competitiveness: State and Cluster Economic Performance, billed as “Prepared for Governor Sam Brownback” in February by Harvard’s Porter analyzes Kansas and its business clusters.

Evidence that backs up Wardwha’s criticism of clusters is found in the recent paper When local interaction does not suffice: Sources of firm innovation in urban Norway (Rune Dahl Fitjar and Andrés Rodríguez-Pose). Summarizing it, Wardwha wrote: “The study found that regional and national clusters are ‘irrelevant for innovation.’”

In particular, the paper states in its introduction: “The results indicate that firm innovation in urban Norway is mainly driven by global pipelines, rather than local interaction. The most innovative — both in terms of basic product innovation and radical product and process innovation — firms are those with a greater diversity of international partners. Local and even national interaction seems to be irrelevant for innovation.”

And from the conclusion: “Recent analyses of clusters and agglomeration have looked for the sources of innovation of firms in the combination of the multiple interactions of firms within the region and in the connections of certain firms in the region with the outside world. The story emerging was one of complementarity. Local interaction took place without much effort through frequent face-to-face interaction in high trust environments, while global pipelines implied a conscious and often costly attempt by individual firms to engage with external actors in order to generate greater innovation and reap economic benefits. … There is a dearth of analyses that have systematically addressed whether the complementarity of these two types of interaction holds across a large number of firms. This has been the main aim of this paper, which has looked at the sources of innovation of 1604 firms across the five main urban agglomerations in Norway. The picture which emerges from the analysis does not conform to that generally stemming from the theoretical literature and from case-studies.”

Is the promotion and pursuit of business and industry clusters a misguided effort by Kansas politicians like Brewer and Brownback and the state’s economic development officials? To the extent that promotion of certain industries means the state is using a top-down, “active investor” approach to economic development — rather than being the caretaker of a competitive platform that encourages as much business experimentation as possible — yes, it is misguided. We run the risk of all the problems described in the opening quotation appearing in this article.

Pickens criticism illustrates divide between free markets and intervention

Last week’s criticism by energy investor T. Boone Pickens of U.S. Representative Mike Pompeo, a Wichita Republican serving his first term, continues to illustrate the difference between those who believe in economic freedom and free markets, and those — like Pickens — who invest in politicians, bureaucrats, and the hope of a government subsidy.

Pickens is pushing H.R. 1380: New Alternative Transportation to Give Americans Solutions Act of 2011, or NAT GAS act. The bill provides a variety of subsidies, implemented through tax credits, to producers and users of natural gas. The goal is to promote the use of natural gas as the fuel the nation uses for transportation.

In his op-ed in the Wichita Eagle, Pickens was critical of Pompeo for his stance in favor of free markets and in opposition to subsidies. His criticism, however, was inconsistent and contradictory. Further, Pompeo’s position on this issue is clear, as part of a resolution he introduced reads: eliminate existing energy subsidies.

There was another target of Pickens’ criticism. He didn’t mention the company by name, but there were several thinly-veiled references to Wichita-based Koch Industries. Charles Koch and his brother David Koch have emerged as prominent defenders of economic freedom and the freedom and prosperity it generates. Charles Koch, in particular, has been outspoken in his criticism of the type of subsidies that Pickens seeks. Koch’s op-ed, also in the Wichita Eagle and on Koch Industries website at Advancing economic freedom, was pointed in its criticism of corporate welfare: “Our government made a point of reforming its welfare policies for individuals but not for corporations. … Unfair programs that favor certain companies — such as the current well-intentioned but misguided suggestion that the natural-gas industry should receive enormous new subsidies — don’t just happen. They are promoted, in large part, by those seeking to profit politically, rather than by competing in a market where consumers vote with their wallets.”

In a statement on the company’s Viewpoint website, Dr. Richard Fink, Executive Vice President of Koch Industries, continued to explain the harm of government intervention, saying “Koch has consistently opposed subsidies that distort markets. We maintain that the marketplace, while not perfect, is the best mechanism for allocating resources to consumers. People deciding what fuels to purchase, instead of the government, is best for consumers and our country. Likewise, if natural gas vehicles are truly advantageous and economically efficient, then consumers will demand that they be developed without political mandates that exhaust more taxpayer dollars.”

Fink continues, “We do not question T. Boone Pickens’ intentions or integrity in this debate. We recognize his experience in the energy markets and take him at his word that he thinks this is a good idea. However, we believe history has demonstrated over and over that these subsidies end up undermining the long term prosperity of the country. For these principled reasons, we oppose this bill to give tax incentives to buyers and makers of natural gas-powered vehicles and related infrastructure. We also consistently oppose subsidies for all other fuels whether or not we benefit from them.”

Pickens would probably object to the use of the term “subsidy,” as the legislation he pushes grants “credits,” a term that sounds fairly benign. Timothy P. Carney, writing in the Washington Examiner, provides an explanation of the difference: “Pickens draws two dividing lines in the piece: tax credit vs. grant, and permanent versus temporary. A temporary subsidy is certainly better than an indefinite or permanent one. The tax credit question is trickier. Many free-market champions support every tax break ever proposed (Ron Paul, for instance). Other free market types (like me, probably) think that tax credits act as subsidies which distort the market, and ultimately lead to tax hikes on others. One of the bad things about tax credits is that they reward businesses for following political signals rather than market signals, but they do it in a way that allow the beneficiaries, like Pickens, to act as if they’re not on the public dole. Sure, a tax credit (most of the time) isn’t a handout, but the favored product (like ethanol or natural gas) only succeeds because its competition is taxed at high rates. So tax credits are the socially acceptable form of corporate welfare.” (emphasis added)

While Carney usually gets things just right, I’ll disagree with him that the question of tax credits is tricky: They have the same economic effect as a grant or subsidy. They engineer the behavior the government wants. But Carney is right about the confusing appearance of tax credits, allowing them to be “the socially acceptable form of corporate welfare.” Unless we really think about it, that is.

In any discussion of Pickens and natural gas, we must recognize that he is an investor in gas and another energy technology related to gas: wind power. In 2008 Pickens ordered 667 wind turbines worth $2 billion from General Electric with plans to build a large wind power plant in Texas. Wind power is highly dependent on government subsidy, with supporters claiming the industry will be devastated unless Congress continues to renew the subsidies.

At one time Pickens wanted to use wind power to generate electricity, and the natural gas saved would be used to power transportation. But there’s another relationship between wind power and gas, and it stems from the unreliability and variability of wind power. It’s difficult to quickly adjust the output of most power plants. But natural gas turbine plants are an exception. Kansas recently saw one of its major electric utilities complete a new natural gas power plant. The need for the plant was at least partly created by its investment in wind: A document produced by Westar titled The Greenhouse Gas Challenge noted the “Construction of the 665 MW natural gas-fired Emporia Energy Center, providing the ability to efficiently follow the variability of wind generation.” In another document announcing a request for a rate increase it stated “Our Emporia Energy Center is excellent for following the variability of wind production.”

At the time of these investments by Pickens and Westar, the price of natural gas was high. Now it is low — so low, and the prospects for future low prices certain enough that Pickens has abandoned his wind farm projects. Even with all the subsidy granted to wind power, it’s cheaper to generate electricity with gas.

(Pickens has been left with many wind turbines he can’t use. According to the Wall Street Journal: “He’s hoping to foist them on ratepayers in Canada, because that country has mandates that require consumers to buy more expensive renewable electricity.” In other words, relying on some other country’s government intervention to relieve him of his mistake.)

So we see Pickens moving from one government-subsidized industry — wind power — to another: the subsidized market for natural gas-powered vehicles he hopes to create. The distinction between political entrepreneurs and market entrepreneurs couldn’t be clearer.

Kansas and Wichita quick takes: Wednesday March 23, 2011

Health information campaign. What happened to an all-star group that was to promote President Obama’s health care plan? Politico reports: “Democrats are under siege as they mark the first anniversary of health care reform Wednesday — and they won’t get much help from the star-studded, $125 million support group they were once promised. Wal-Mart Watch founder Andrew Grossman unveiled the Health Information Campaign with great fanfare last June. … But nine months later, the Health Information Campaign has all but disappeared.”

Eisenhower book author to speak in Wichita. At this Friday’s meeting (March 25) of the Wichita Pachyderm Club, David A. Nichols, Ph.D. will speak on his new book Eisenhower 1956: The President’s Year of Crisis — Suez and the Brink of War . Nichols is formerly of Southwestern College in Winfield. Copies of the new book will be available for purchase at the meeting. The public is welcome and encouraged to attend Wichita Pachyderm meetings. For more information click on Wichita Pachyderm Club. … Upcoming speakers include Derrick Sontag of Americans for Prosperity on April 1, Deputy Public Defender Jama Mitchell on April 8, Kansas Senator Chris Steineger on April 15, Friends University Associate Professor of Political Science Russell Arben Fox on April 22, and Wichita State University Political Scientist Ken Ciboski on April 29.

Kansas agencies mum on travel spending. From Kansas Policy Institute: “State agencies, boards and universities in Kansas claimed they did not have to disclose details on $21.4 million in spending on various forms of travel and entertainment in FY 2010, according to a Kansas Policy Institute (KPI) analysis of the state’s checkbook.” According to KPI president Dave Trabert: “$39 million is a lot to spend on travel in any year, and especially so when some agencies say they are being forced to cut services. Maybe the Kansas Bureau of Investigation needs some discretion when conducting investigations, but the breadth and volume of these confidentiality claims are incomprehensible.” While the Kansas Open Records Act (KORA) has many categories of information that are exempt from disclosure, agencies have discretion as to which information to disclose. None of the exemptions mention travel. Says Trabert: “State checkbook records don’t indicate which exemption from disclosure is invoked on travel spending, but disclosing the names of hotels, airlines and restaurants that received taxpayer money would not be an unwarranted invasion of anyone’s personal privacy. It is, however, an unwarranted invasion of taxpayers’ right to not know how their money is being spent and state law should be changed to eliminate gaping loopholes in KORA.” … I’m really curious to learn more about this finding: “KPI’s review of state travel records also found many examples of the vendor being listed as the agency or university itself rather than the actual vendor that provided the service.” … KPI’s press release is at State Agencies Claim Confidentiality on Travel Spending.

Kansas wind energy jobs. Again we find that the promise of green energy projects being an economic development driver is overplayed. In “Goal of many more ‘green’ jobs is elusive” (February 14, 2011 Kansas City Star) we find the same skepticism that most now see justified regarding ethanol is applicable to wind power: “‘We need to temper our expectations on wind energy,’ said David Swenson, an Iowa State University economist known for deflating the ethanol industry’s job claims. Now, he says, the same ‘environment of hype’ is developing around wind power.” It’s been good for China, though: “… more than 80 percent of $1 billion in federal stimulus grants for wind projects went to foreign countries. One of the projects, a $1.5 billion wind farm in Texas, expected to collect $450 million in stimulus money — but use wind turbines made in China.” The counting of a job as “green” is highly suspect, as the article notes: “Kansas officials have trumpeted that the state already has 20,000 green jobs — and hopes for 10,000 more, many from manufacturing and assembly work for generating wind power. But so far, most of the jobs in that count by the state Department of Labor have been around for years, including carpenters installing energy-efficient windows and plumbers putting in toilets that don’t use much water. Even maids, if they use green products, are classified as green-collar workers.” … Wichita Mayor Carl Brewer promotes manufacturing of wind power machinery as good for Wichita’s economic development, and Kansas Governor Sam Brownback supports renewable energy standards for Kansas.

The role of profits and losses. From Robert P. Murphy, Lessons for the Young Economist: Many naïve observers of the market economy dismiss concern with the “bottom line” as a purely arbitrary social convention. To these critics, it seems senseless that a factory producing, say, medicine or shoes for toddlers stops at the point when the owner decides that profit has been maximized. It would certainly be physically possible to produce more bottles of aspirin or more shoes in size 3T, yet the boss doesn’t allow it, because to do so would “lose money.” On the other hand, many apparently superfluous gadgets and unnecessary luxury items are produced every day in a market economy, because they are profitable. Observers who are outraged by this system may adopt the slogan: “Production for people, not profit!” … Such critics do not appreciate the indispensable service that the profit and-loss test provides to members of a market economy. Whatever the social system in place, the regrettable fact is that the material world is one of scarcity — there are not enough resources to produce all the goods and services that people desire. Because of scarcity, every economic decision involves tradeoffs. When scarce resources are devoted to producing more bottles of aspirin, for example, there are necessarily fewer resources available to produce everything else. It’s not enough to ask, “Would the world be a better place if there were more medicine?” The relevant question is, “Would the world be a better place if there were more medicine and less of the other goods and services that would have to be sacrificed to produce more medicine?” … Loosely speaking, the profit and loss system communicates the desires of consumers to the resource owners and entrepreneurs when they are deciding how many resources to send into each potential line of production. … In a market based on the institution of private property, profits occur when an entrepreneur takes resources of a certain market value and transforms them into finished goods (or services) of a higher market value. This is the important sense in which profitable entrepreneurs are providing a definite service to others in the economy.

Kansas and Wichita quick takes: Friday March 11, 2011

Owens said to be blocking judicial selection reform. From National Review Online All Eyes on Kansas: “Unfortunately, I am reliably informed that the liberal Republican chair of the state senate Judiciary Committee, Tim Owens, is obstructing the reform legislation, refusing to even hold a hearing. I hadn’t heard of Owens until now, and I doubt very many people have, but apparently this is not the first time he has used his power to thwart the goals of his colleagues. … If Owens wants to make policy for the entire state of Kansas, he should run for statewide office. Until then, he should at least hold a hearing and allow a vote on this judicial-selection-reform bill that has the support of the state’s governor and house of representatives.” … It’s not surprising that Tim Owens, an attorney and Republican from Overland Park, would be obstructing reform measures that would take power away from the state’s bar in place it in the hands of the people. The characterization by NRO of Owens as liberal is accurate, as on last year’s Kansas Economic Freedom Index, Owens scored just 20 percent.

Cabela’s bank. Lincoln (Nebraska) Journal Star: “World’s Foremost Bank, the Lincoln-based credit card operation run by outdoors retailer Cabela’s, has settled allegations of unfair and deceptive practices for more than $10 million, the Federal Deposit Insurance Corp. announced Tuesday.” Cabela’s was recently awarded a large and generous hunk of corporate welfare from the City of Wichita, on the threat that the merchant would not open a store in Wichita unless such welfare was forthcoming. Cabela’s: an honorable company? You decide. Also you decide whether Wichita’s “due diligence” investigation of the backgrounds of its partners should have been aware of this.

Scott Walker. Wisconsin Governor Scott Walker writing in the Wall Street Journal: “In 2010, Megan Sampson was named an Outstanding First Year Teacher in Wisconsin. A week later, she got a layoff notice from the Milwaukee Public Schools. Why would one of the best new teachers in the state be one of the first let go? Because her collective-bargaining contract requires staffing decisions to be made based on seniority.” Walker goes on to explain some of the fiscal aspects of his efforts, but there are other very important goals to achieve, he writes: “Beyond balancing budgets, our reforms give schools — as well as state and local governments — the tools to reward productive workers and improve their operations. Most crucially, our reforms confront the barriers of collective bargaining that currently block innovation and reform.” The situation where an outstanding teacher would be laid off instead of a less-effective teacher would happen in Wichita, too, as the Wichita teachers union contract requires the same policy as does Wisconsin’s. Situations like this, not to mention the financial factors, as why public worker unions are harming America.

Outsourcing opposed by Kansas state workers. Kansas Organization of State Workers opposes a bill creating the Kansas Advisory Council on Privatization and Public-Private
Partnerships Act. The purpose of the bill (HB 2194) is to seek ways to improve the operations of state agencies, as described in the supplemental note of the bill: “1) focus on the core mission and provide goods and services efficiently and effectively; 2) develop a process to analyze opportunities to improve efficiency, cost-effectiveness and provide quality services, operations, functions, and activities; and 3) evaluate for feasibility, cost-effectiveness, and efficiency opportunities that could be outsourced.” … This is the type of efficiency-seeking efforts that many private-sector firms undergo regularly. But not so much for government. In fact, state employees are actively opposing this bill. Here’s what the state worker advocacy group KOSE says: “Our services are under threat from a privatization proposal and it’s up to us to stop this devastating bill in Senate Committee. HB 2194, misleadingly called the council on efficient government act, establishes a partisan commission of big-business interests to privatize state services putting a wolf in charge of the hen house. To be clear, this bill allows for future privatization of nearly all services provided by state workers.” It’s not clear who KOSE means when writing “our services.” Not to mention the fact that right now the wolf (government worker unions) are in charge of the hen house (the politicians whose support they buy with union dues). … When the City of Wichita outsourced some maintenance of parks, they estimated it would save a certain amount. After starting the project, the city saved even more than first thought. … The state has a responsibility to its citizens to operate as efficiently as possible. If it is possible to have work done less expensively through outsourcing, the state should do so. The state’s first responsibility is to the taxpayers, not a state worker jobs program.

Tilting at wind turbines. “Switching from conventional sources of electricity like coal and natural gas to renewables like wind and solar, our elected leaders tell us, will reduce pollution, advance renewable technology and spark a green jobs revolution. Is renewable energy really a green pathway to a brighter economic future? Or is it nothing more than a heavily subsidized impossible dream?” Reason TV takes a look at wind energy in the video Tilting at Wind Turbines: Should the Government Subsidize Renewable Energy? Locally, Wichita Mayor Carl Brewer promotes manufacturing of wind power machinery as good for Wichita’s economic development, and Kansas Governor Sam Brownback supports renewable energy standards for Kansas.

Kansas and Wichita quick takes: Thursday March 10, 2011

Kansas labor report. For January 2011, the Kansas Department of Labor reports: “According to January 2011 estimates, Kansas businesses lost 6,100 jobs over-the-year, a 0.5 percent decrease. … The January 2011 unemployment rate in Kansas was 7.4 percent, up from 6.4 in December 2010 but down from 7.9 percent in January 2010.” Said Labor Secretary Karin Brownlee: “The Great Recession continues to take a tremendous toll on the Kansas economy. The Governor’s focus on creating jobs could not be more timely. The work by the Brownback administration to make Kansas the best place to do business is the focus needed to grow our economy. Improving the tax and regulatory climate will help take some of the sting out of this recession and get Kansans back to work.” … Interestingly, at a time when it is said government is slashing budgets, government employment at all levels in Kansas grow by about 300 jobs from January 2010 to January 2011. In Topeka, about 600 government jobs were gained over that time period, in Wichita 300 jobs, and in Kansas City, 400 jobs.

Whose money is it? Wisconsin protester: “Why do you have a right to your money?” See video.

Kansas 2011 budget. Kansas Reporter writes: “Kansas House and Senate negotiators reached a tentative school financing deal Wednesday that may unjam state budget talks that have been stalled for weeks. … In the agreement that began emerging Wednesday, the House negotiators broadly agreed to restore some of the originally proposed special education funding cuts, while Senate negotiators broadly agreed to cut general fund spending for workers’ longevity pay, capital improvement projects and some child care development and insurance plans. Between $12 million and $14 million for those programs would come from special funds outside the state’s basic general fund or would be self funded with internal budget reductions.”

Green jobs. John Stossel in Washington Examiner: “Anyone who understands basic economics already knows that President Obama’s $2.3 billion green-jobs initiative was snake oil. Now, thanks to Kenneth P. Green, we have statistics as well as theory to prove it. In a new article, ‘The Myth of Green Energy Jobs: The European Experience,’ the environmental scientist and a resident scholar at the American Enterprise Institute writes, ‘Green programs in Spain destroyed 2.2 jobs for every green job created, while the capital needed for one green job in Italy could create almost five jobs in the general economy.’” The article Stossel refers to may be read by clicking on The Myth of Green Energy Jobs: The European Experience. Despite this evidence, Wichita Mayor Carl Brewer promotes manufacturing of wind power machinery as good for Wichita’s economic development, and Kansas Governor Sam Brownback supports renewable energy standards for Kansas.

America, welfare nation. Investor’s Business Daily: “More than one-third of all wages and salaries in this country are actually government handouts. We should be alarmed that we’ve become a nation of dependents. Using data mined from the Bureau of Economic Analysis, TrimTabs Investment Research has found that 35% of wages and salaries this year will be in the form of a government payment. That’s up sharply from 2000, when it was 21%, which is more than double the rate — 10% — of 1960.” … We should note that 1960 was before the start of the Great Society programs of Lyndon Johnson and of the War on Poverty. 2000 was the year of the election of George W. Bush.

Politics vs. free markets. Rothbard on the difference between the political means and the economic means: “A second basic reason for the oligarchic rule of the State is its parasitic nature — the fact that it lives coercively off the production of the citizenry. To be successful to its practitioners, the fruits of parasitic exploitation must be confined to a relative minority, otherwise a meaningless plunder of all by all would result in no gains for anyone. Nowhere has the coercive and parasitic nature of the State been more clearly limned than by the great late nineteenth-century German sociologist, Franz Oppenheimer. Oppenheimer pointed out that there are two and only two mutually exclusive means for man to obtain wealth. One, the method of production and voluntary exchange, the method of the free market, Oppenheimer termed the ‘economic means’; the other, the method of robbery by the use of violence, he called the ‘political means.’ The political means is clearly parasitic, for it requires previous production for the exploiters to confiscate, and it subtracts from instead of adding to the total production in society. Oppenheimer then proceeded to define the State as the ‘organization of the political means’ — the systematization of the predatory process over a given territorial area.”

Kansas and Wichita quick takes: Thursday December 30, 2010

Kansas Meadowlark blog recast. Earl Glynn of Overland Park has reformed his Kansas Meadowlark site from a blog to a news site along the lines of the Drudge Report. Glynn’s full-time job is working for Kansas Watchdog.

Longwell site noted. A website supporting the candidacy of Wichita Vice Mayor Jeff Longwell for re-election to his current position has been spotted. Title: Vote for Jeff Longwell.

Kansas legislative issues to watch. Fort Hays State University political science professor Chapman Rackaway lists the things to watch for in the upcoming session of the Kansas Legislature, which opens on January 10. Here’s his list: The budget, K-12 education funding, economic growth, higher education, entitlements, a balancing act between the “interests of the center-right and polar-alliance wings of the party,” and redistricting. The full article is in the Wichita Eagle at Seven legislative issues to watch in 2011.

Local governments are a model. H. Edward Flentje, public affairs professor at Wichita State University, explains the difference between the finances of local governments — cities and counties — as compared to states and the federal government: “So, why aren’t our cities and counties wallowing in red ink? For the most part, they do the basics right. They keep revenues and spending in balance. When times are tough, they tighten the belt. In good times, they pay off debt or pay for projects that might otherwise require debt. They maintain reasonable fund balances that buffer economic downturns and avoid unnecessary tax increases or draconian cuts in services. They use debt sparingly but never for ongoing obligations.” He also mentions the role of professional managers in local government, something that Kansas has a long tradition of using. Flentje plays a role in educating and training these managers, and served a stint as interim city manager for Wichita a few years ago. The full article is at State of the State KS at Insight Kansas Editorial: Local Clues for Stemming the Flow of Red Ink.

Truce in culture wars? Michael Barone in the Washington Examiner: “The fact is that there is an ongoing truce on the social issues, because for most Americans they have been overshadowed by concerns raised by the weak economy and the Obama Democrats’ vast increase in the size and scope of government.” Somehow I don’t think this message has made it to Kansas. As reported by Fred Mann in today’s Wichita Eagle: “Before Kansas lawmakers consider such a bill, Kinzer said, they will take up a host of previous abortion measures that were vetoed by former Govs. Kathleen Sebelius and Mark Parkinson, and that are more likely to be approved by incoming Gov. Sam Brownback.” Lance Kinzer is a member of the Kansas House of Representatives from Olathe and a member of Governor-Elect Sam Brownback’s transition team. Barone, in the article mentioned above, writes “Abortion remains controversial. But we are not going to see abortion criminalized, not in a country where the Supreme Court has been ruling for 37 years that it’s a right. At the same time, we are seeing abortion disfavored and restricted by state laws that are widely popular and have at least in some cases been upheld by the courts.” In Kansas, though, anti-abortion forces are preparing a number of laws that concern, according to Mann, “tightened reporting requirements for late-term abortions, remedies against doctors who violate the laws, and provisions allowing a woman, her husband or parents to sue a doctor if they thought a late-term abortion was performed illegally.” The biggest danger is the culture war in Kansas will take our focus off the state’s economy and the need to get it on track. Chapman Rackaway, in his piece mentioned above, wrote: “If Brownback can successfully balance pragmatism and the interests of the center-right and polar-alliance wings of the party, he can be a rousing success as governor. If open warfare breaks out between wings of the party, all could be lost.”

Wind power: the transmission subsidy. From The Wall Street Journal column The Midwest Wind Surtax: The latest scheme to socialize the costs of renewable energy: “You’d think poor Michigan has enough economic troubles without the Federal Energy Regulatory Commission placing a $300 million to $500 million annual surtax on the state’s electric utility bills. But on December 16 FERC Chairman Jon Wellinghoff announced new rules that would essentially socialize the cost of transmission lines across 13 states in the Midwest. … This is another discriminatory subsidy for wind energy that will raise electricity prices on everyone, notably on those who don’t rely on wind for electric power. … Let’s be very clear on what’s happening here: Mr. Wellinghoff and FERC are trying to establish by regulatory fiat a national energy policy that Congress has refused to endorse. Last summer Congress rejected the Obama Administration’s renewable energy standard law because it would have inflated power costs.” In Kansas, outgoing Governor Mark Parkinson is proud of his accomplishments in forcing more wind power mandates on Kansans.

Wind power again reaps subsidy

The editorial page of the Wall Street Journal is at the forefront of letting Americans know just how bad an investment our country is making in wind power, as well as other forms of renewable energy. A recent Review and Outlook piece titled The Wind Subsidy Bubble: Green pork should be a GOP budget target holds these facts:

  • The recent tax bill has a $3 billion grant for wind projects.
  • The 2009 stimulus bill had $30 billion for wind.
  • Wind power installations are way down from recent years.
  • The 2008 stimulus bill forces taxpayers to pay 30% of a renewable energy project’s costs. Wind energy also get a tax credit for each unit of power produced.
  • “Subsidies for renewable energy cost taxpayers about $475,000 for every job generated.”
  • “The wind industry claims to employ 85,000 Americans. That’s almost certainly an exaggeration, but if it is true it compares with roughly 140,000 miners and others directly employed by the coal industry. Wind accounts for a little more than 1% of electricity generation and coal almost 50%. So it takes at least 25 times more workers to produce a kilowatt of electricity from wind as from coal.”

This information is timely as Kansas Governor Mark Parkinson recently released a list of his “achievements,” three of which involve increasing wind power in Kansas.

Incoming Kansas governor Sam Brownback is in favor of wind energy too, and he also supports federal subsidies and mandates for ethanol production and use. In endorsing Brownback the Kansas Association of Ethanol Producers said “… no other public official has done more to promote the merits of ethanol than Sam Brownback. Whereas ethanol is the future of America’s fuel supply, Sam Brownback is the future of Kansas.”

The Wall Street Journal has also long been opposed to this intervention in the market for ethanol, recently quoting a report by a group of U.S. Senators: “Historically our government has helped a product compete in one of three ways: subsidize it, protect it from competition, or require its use. We understand that ethanol may be the only product receiving all three forms of support from the U.S. government at this time.”

Kansas Governor Parkinson says “thank you”

This week outgoing Kansas Governor Mark Parkinson released a “thank you” to Kansans that has been commented on — favorably — in many Kansas newspapers and media outlets. The entire piece may be read at the governor’s site at Thanks So Much.

The governor’s list of “achievements” — his language, not mine — is a reminder that under Parkinson and his predecessor Kathleen Sebelius Kansans have lost economic and personal freedom. It’s nothing that we should thank Parkinson for, and nothing he should be proud of.

Under achievement number one (“Steering the state budget through a very challenging time”) Parkinson wrote “Suffice it to say that I cut state spending more than any governor in Kansas history.” He doesn’t mention that he was forced to make these cuts, as Kansas can’t run deficits like the federal government.

Achievements two, three, and four have to do with his promotion of wind power in Kansas. It’s almost impossible to overstate how unwise these policies are. See Wind power: a wise investment for Wichita and Kansas? for a recent discussion of why wind power is a bad investment. Relying on the manufacturing of wind power equipment as an economic development strategy is an even worse idea. The governor praises legislation that requires utilities to increase their usage of renewable power such as wind. But I’d ask the governor this: If electricity from wind is so desirable, why do utilities have to be forced — and heavily subsidized — to produce it?

Achievement seven highlights “Economic development wins,” mentioning Black and Veatch, Cerner, Bombardier LearJet, and Hawker Beechcraft in particular. Each of these “wins” required large subsidy from the state. Worse, these taxpayer giveaways cement our practice of bureaucratic management of economic development instead of creating a vibrant Kansas business climate where innovation and entrepreneurship thrive. This state policy filters down to counties and cities, to the point where the first consideration for businesses and entrepreneurs is not is this something that will create value for customers and profit for me and my investors but rather what type of government help can I get?

Achievement eight is the statewide smoking ban. Parkinson’s championing of it means that he doesn’t believe that adult Kansans can decide for themselves whether they want to be around smokey places, and that he has little respect for private property rights.

Achievement nine is the new transportation plan. The governor claims it will create or keep 175,000 jobs. Most of these must be highway construction jobs, as it is that industry that heavily supported the plan. As usual, the governor and other advocates of government spending fail to see the jobs that are lost due to the government spending and the taxes necessary to pay for it. Veronique de Rugy explains: “Taxes simply transfer resources from consumers to government, displacing private spending and investment. Families whose taxes have increased will have less money to spend on themselves. They are poorer and will consume less. They also save less money, which in turn reduces the resources available for lending.” In addition, Kansas roads rate very well, even number one among the states in one highly-publicized study. Why the need to so much new investment?

Finally, achievement number ten is “Keeping Kansas a great place to do business.” If this is true, I wonder why do we have to spend so much on subsidies to keep Kansas companies from expanding elsewhere or packing up and leaving entirely, as with Hawker Beechcraft?

Wind power: a wise investment for Wichita and Kansas?

Writing in The Wall Street Journal, Robert Bryce explains the terrible economics now facing the wind power energy, with emphasis on T. Boone Pickens, who has made a big splash with his plans to invest in wind power. A few takeaways:

  • Pickens’ $2 billion investment in buying wind turbines has left him with “a slew of turbines he can’t use.”
  • U.S. government subsidies amount to $6.44 per million BTUs generated by wind, but natural gas costs just $4 now. These low prices may be around for years, with gas market futures contracts below $6 through 2017.
  • Even with the subsidy, gas can’t compete with wind. Wind power installations are down 72 percent in 2010 as compared to 2009. That trend is expected to continue.
  • “Texas Comptroller Susan Combs reported that property tax breaks for wind projects in the Lone Star State cost nearly $1.6 million per job.”
  • Because Canada has renewable energy mandates, Pickens hopes to sell his turbines there.

With the economics of wind power looking so grim and with $2 billion of turbines sitting around looking for a buyer, we have to question the wisdom of Wichita Mayor Carl Brewer recruiting wind power companies to come to Wichita.

Incoming Kansas governor Sam Brownback is a supporter of renewable energy standards. These standards require utility companies to produce a certain level of power from renewable sources, which in Kansas is primarily wind. When Kansas electric generator Westar announced plans to increase its wind energy portfolio, Brownback said “Kansas wind is an important resource for our state that will provide clean energy for our residents and businesses and contribute to our economic growth. I applaud Westar Energy’s leadership in wind energy.”

A Wind Power Boonedoggle

T. Boone Pickens badly misjudged the supply and price of natural gas.
By Robert Bryce

After 30 months, countless TV appearances, and $80 million spent on an extravagant PR campaign, T. Boone Pickens has finally admitted the obvious: The wind energy business isn’t a very good one.

The Dallas-based entrepreneur, who has relentlessly promoted his “Pickens Plan” since July 4, 2008, announced earlier this month that he’s abandoning the wind business to focus on natural gas.

Continue reading at The Wall Street Journal (subscription required) or at Bryce’s site (free)

Kansas and Wichita quick takes: Tuesday November 16, 2010

Future of California. George Gilder, writing in the Wall Street Journal, lays out a grim future for California based on voters’ refusal to overturn AB 32, the Global Warming Solutions Act. Of the requirement to reduce greenhouse gas emissions in the state, Gilder writes: “That’s a 30% drop followed by a mandated 80% overall drop by 2050. Together with a $500 billion public-pension overhang, the new energy cap dooms the state to bankruptcy.” He says that AB 32 may not be necessary at all: “The irony is that a century-long trend of advance in conventional ‘non-renewable’ energy — from wood to oil to natural gas and nuclear — has already wrought a roughly 60% drop in carbon emissions per watt. Thus the long-term California targets might well be achieved globally in the normal course of technological advance. The obvious next step is aggressive exploitation of the trillions of cubic feet of low-carbon natural gas discovered over the last two years, essentially ending the U.S. energy crisis.” … Referring to green energy radicals, Gilder writes: “Their economic model sees new wealth emerge from jobs dismantling the existing energy economy and replacing it with a medieval system of windmills and solar collectors. By this logic we could all get rich by razing the existing housing plant and replacing it with new-fangled tents.” Which reminds me of when I criticized those who promote wind power for its job creation: “After all, if we view our energy policy as a jobs creation program, why not build wind turbines and haul them to western Kansas without the use of machinery? Think of the jobs that would create.” An economic boom to those along the Santa Fe Trail, no doubt.

All the billionaires. An amusing commentary — amusing until you realize what it really means — by Scott Burns in the Austin American-Statesman takes a look at how long the wealth of America’s billionaires could fund the federal government deficit. The upshot is that there are about 400 billionaires, and their combined wealth could fund the deficit for about nine months. What’s sobering about this? All this wealth would go to fund only the deficit — that portion of federal spending above revenue for the year. There’s still all the base spending to pay for. And the wealth of these people, which in many cases is in the substance of the companies they founded or own — Microsoft, Oracle, Koch Industries, Wal-Mart, Google, etc. — would be gone.

Kansas has sold assets before. In this year’s session of the Kansas Legislature, there was a proposal to sell state-owned assets in order to raise funds and reduce costs. Kansas Reporter’s Rachel Whitten reports it’s been done before, with success.

Where are the airlines? James Fallows of The Atlantic regarding the new “groping” TSA screenings at airports. Echoing Wichitan John Todd from last week, one reader writes: “And again, where are the airlines? When TSA begins to drive away customers, they’ll react, is the stock answer. I would argue that it already does drive away customers (certainly if the emails I receive are any indication), but what of those it ‘merely’ makes angry? There’s something wrong with a business model that accepts angry and harassed customers as an acceptable option to no customers at all.” Wichitan Mike Smith writes in: “Tomorrow, the U.S. Senate is having a hearing regarding the TSA’s new procedures that I hope results in the procedures being rescinded. If your readers want to make last minute contact with Kansas Senators Pat Roberts and Sam Brownback (who is on the committee with TSA oversight), I urge them to do so.”

Next for the tea party. Patrick Ruffini in National Review looks at the future of the tea party. Ruffini notes the difficulty in maintaining the momentum of grassroots efforts. Both Bush and Obama have faced this. He cautions: “The experience should provide a cautionary tale to the Tea Partiers, with their more humble origins: Hitch yourself to established power institutions at your own peril.” But other, newer organizations have sprung up to help tea party activisits: “Ned Ryun, executive director of American Majority — one of the more promising new institutions that have risen up around the Tea Party movement — wants to ignore Washington and go local. ‘What the movement is really about, quite frankly, is the local leaders, and I’ve made a point with American Majority of going directly to them, and ignoring the so-called national leaders of the movement,’ he told me. ‘I think the national leaders are beside the point; if they go away, the movement still exists. If the local leaders go away, the movement dies.’” Kansas is one of the states that American Majority has been active in since its inception. American Majority plans to be involved at the local government level in the 2012 elections.

The new naysayers. President Obama and others have criticized Republicans for being the party of “No.” Now that some of the president’s deficit reduction commission recommendations are starting to be known, there’s a new party of “No.” Writes Ross Douthat in the New York Times: “But Erskine Bowles and Alan Simpson performed a valuable public service nonetheless: the reaction to their proposals demonstrated that when it comes to addressing the long-term challenges facing this country, the Democrats, too, can play the Party of No.”

Community Improvement Districts spread to Overland Park. As reported in Kansas Reporter, Overland Park is considering whether to create its first Community Improvement District. In this case, the district — which allows merchants within to charge extra sales tax for their own benefit — would benefit a proposed residential and retail complex. More about these tax districts may be found here.

Fifteen bad things with wind power — and three reasons why

Here’s an article full of important observations about the drive to produce more of our electricity from wind power. For example, promoters of wind (and solar) say we can use it to reduce our dependence on foreign oil. But this article points out that only one percent of our electricity is generated from oil.

Another important observation has to do with the high cost of electricity generated by wind: “Along the way, yet another claim has been made: that wind energy is low cost. This is surprisingly bold considering that if that was really true, then why would any RES be necessary? For some reason all ‘calculations’ showing wind to be low cost conveniently ignore exorbitant subsidies, extra backup and balancing costs, additional transmission costs, etc.”

That’s a simple and brilliant observation: if electricity from wind is so cheap to produce, why do utilities have to be forced — and subsidized — to produce it?

Fifteen Bad Things with Windpower–and Three Reasons Why

By John Droz Jr.

Trying to pin down the arguments of wind promoters is a bit like trying to grab a greased balloon. Just when you think you’ve got a handle on it, it squirts away. Let’s take a quick highlight review of how things have evolved.

1 — Wind energy was abandoned well over a hundred years ago, as it was totally inconsistent with our burgeoning more modern needs of power, even in the late 1800s. When we throw the switch, we expect that the lights will go on — 100% of the time. It’s not possible for wind energy, by itself, to ever do this, which is one of the main reasons it was relegated to the dust bin of antiquated technologies (along with such other inadequate sources like horse power).

2 — Fast forward to several years ago. With politicians being convinced by lobbyists that Anthropological Global Warming (AGW) was an imminent threat, a campaign was begun to favor all things that would purportedly reduce CO2. Wind energy was thus resurrected, as its marketers pushed the fact that wind turbines did not produce CO2 in their generation of electricity.

Continue reading at MasterResource: A free-market energy blog