Tuesday, May 06, 2008

False Dichotomy

The fate of the renewable electricity production tax credit (PTC), which provides incentives for power generated from wind, solar, and other alternative energy sources, is apparently still in doubt. Last month the US Senate approved a one-year extension of the credit as an amendment to a housing bill, but the House of Representatives is balking at the provision's cost. Previous efforts to extend the credit and pay for it by revoking tax benefits for the oil industry failed. With oil companies earning record profits, the temptation to tax them to pay for alternative energy seems overwhelming, but it reflects a profound misunderstanding of the nature of our energy problems and the relative scale of the available solutions. We need more wind power and more oil, not one at the expense of the other.

To understand why taxing the oil industry to subsidize wind and solar power won't advance US energy security--never mind energy independence--consider the contribution of additional wind power to the US energy balance. In 2007 the US wind industry had a banner year, adding 5,244 MW of new wind capacity, expanding the installed wind power base by 45%. This represents an important increment of renewable energy that will help reduce our future greenhouse gas emissions. At an average capacity factor of 30%, the new wind turbines added last year will generate approximately 14 billion kilowatt-hours each year they are in operation. That's a substantial amount of electricity, though it represents only 0.3% of the 4 trillion kWh of electrical energy the US consumed in 2006. More relevant to the wind vs. oil competition created by Congress, however, the equivalent BTUs saved by that extra wind power (assuming it displaces gas-fired power generation) equate to only 63,000 barrels per day of oil--the output of a single medium-sized oil platform. If imposing higher taxes on US oil producers resulted in only one oil project being deferred or canceled, then the energy contribution of an entire year's worth of wind capacity additions would be negated.

When we prioritize our current energy challenges, the most urgent among them is the large volumes of high-priced oil we must import, in competition with the developing economies of Asia and the Middle East. This expands our trade deficit, drives inflation, and puts further pressure on the dollar, in a vicious cycle. We have many options for generating electricity, but few for producing transportation fuels, particularly with ethanol facing serious concerns about its competition with food--and emerging worries about its water consumption. Until we have large numbers of plug-in hybrid cars or other electric vehicles, electricity is not a substitute for oil in transportation. Nor is renewable energy our only option for reducing greenhouse gas emissions.

I'm not arguing that we should allow the PTC to expire. That would be a bad outcome for many reasons, not the least being the number of US jobs potentially at stake in a weakening economy. Instead, I am convinced that we need both a thriving renewable energy industry and a thriving domestic oil industry. Pitting one against the other is a terrible idea, if we really care about energy security and reducing the economic and geopolitical consequences of US oil imports. It creates a false dichotomy that owes everything to politics and nothing to a cold assessment of the facts. If the Congress cannot find $6 billion of earmarks that could be cut to fund the PTC for another year, without putting future US oil production at risk, then our problems are even bigger than they appear.

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