In a recent article in the Wall Street Journal entitled, “Clean Energy Is Under Attack Even Where It’s Booming”, the author, Jennifer Hiller, bemoans the loss of tax credits for clean-electricity generation which are set to vanish under a plan proposed last week by congressional Republicans. She quotes Jason Grumet, a lobbyist with American Clean Power as saying, “The practical effect is an abrupt repeal of these incentives that translates into significant tax hikes that are going to freeze investment”.
When I hear Jason confess that without tax breaks all investment in wind and solar would come to a screeching halt, I am reminded of something that conservative economist Milton Friedman said about the “infant industry argument”. The argument postulates that newly established and favored industries need temporary protection and incentives (like tax breaks) to allow them to mature and become competitive with established firms. Friedman criticized the “infant industry argument” by observing that the so-called infants never seem to grow up.
One might ask Mr. Grumet the same question. When will the sheltered renewables industry be able to stand on its own. Here we are twenty years into the experiment, and we are still treating the renewables industry like it is a child. Figuratively speaking, isn’t it time for the industry to move out of its parent’s basement?
Supporters of the renewables industry ignore the fact that tax incentives lead to a distortion of the market and hinder long-term economic growth by preventing resources from flowing to their most productive uses. As Friedman argued, only in free markets where businesses compete without artificial protection is there efficient allocation of resources.
As I have stated in previous articles, generating electricity with a combination of solar, wind, and gas is an inefficient way to allocate capital. Capacity factors, which are measures of asset utilization, are much lower for solar, wind and gas combined than with gas only. A combined generation scheme only becomes competitive when the price of gas rises to four times its current price.
In her WSJ article, Hiller does not give an adequate explanation as to why an industry that is as robust as she claims would need tax incentives. Does she assume that the industry is entitled to them because of a social good that it provides? That is an easier approach for her to take than claiming that the economics of renewable generation is sound.
I am amused by her newfound concern for electricity supply to meet the growing demands of data centers for AI and new manufacturing that is making its way back to the shores of America. She has spent the last two decades taking an orgiastic delight in the premature retirement of thermal power plants and now she is worried about whether the lights stay on. I think not.
Jennifer makes the shrewd observation that about three dozen Republican members of Congress have pledged support of IRA provisions in recent weeks because most clean-energy projects are in Republican states. She is pointing out a real problem. It is because of these spineless creatures that Trump can not put a dagger in the heart of this beast once and for all.
Image generated by AI.