Republican Oklahoma Gov. Mary Fallin has proposed ending subsidies for wind energy producers and instead taxing them to reduce the state’s budget gap.
Wind energy producers in Oklahoma may soon have to give money to the state instead of taking it, leveling a playing field critics say has been unfair for far too long.
Property tax exemptions for wind turbines ended in January 2017. Now, in an effort to offset a projected $870 million hole in the 2018 budget, Oklahoma Gov. Mary Fallin (R) unveiled a spending plan calling for a tax of 0.5 cent per kilowatt hour (kwh) on wind energy production.
Currently, only the State of Wyoming taxes wind producers, at 0.1 cent per kwh. Oklahoma’s tax on wind production would be 500 percent greater than Wyoming’s rate.
Ending Wind Support
Fallin also proposes phasing out wind subsidies, which her budget proposal says would cost the state $60 million per year over the next 15 years. With wind power already accounting for 20 percent of the state’s electricity production, exceeding the state’s 15 percent requirement, Fallin says wind subsidies are unnecessary.
“This industry was incentivized sufficiently to now be a major player in the Oklahoma energy industry, and a major winner of now unnecessary incentives,” Fallin wrote in her budget proposal.
Ted Bolema, a senior fellow at the Free State Foundation, agrees wind subsidies have outlived their usefulness and are more burdensome than they are beneficial to Oklahoma taxpayers.
“Oklahoma has gone from very little wind production a decade ago to the state with the fourth-most wind generation capacity in the country today,” Bolema said. “This dramatic change, at a time when plenty of other states are subsidizing wind generation, is a strong indication that Oklahoma’s tax credits were more generous than they needed to be for Oklahoma to reach its wind generation target.”
Fallin’s tax plan will need strong legislative support to pass, because Oklahoma has the nation’s strictest legislative rules on taxes. Tax increases, including ending tax credits, require approval from three-quarters of the legislators in the state’s House and Senate.
On March 9, the Oklahoma House passed a bill to end the wind tax credit by a vote of 74 to 24.
“Passage will probably be easier in the state Senate,” Bolema said.
The Wind Coalition, which represents Oklahoma wind energy producers, says adding a tax on top of tax incentive reductions will lead to higher electricity bills for customers, according to a February 7 report in The Daily Oklahoman.
Federal Subsidies Remain
That worry may prove unwarranted. State and local tax perks are small potatoes for wind producers compared to what they get from the oft-renewed federal Production Tax Credit (PTC). Slated to phase out in 2020, PTC pays $23 per megawatt hour for the first 10 years of a wind project, regardless of wholesale electricity prices.
A 2016 study for the Oklahoma Incentive Evaluation Commission found the state’s participation in the PTC program increased rapidly during the past five years. In 2014, Oklahoma wind power generators garnered $113 million from the PTC, up from $3 million in 2010.
Oklahoma gets more PTC money than its taxpayers put into the program. According to the Institute for Energy Research, Oklahoma was the third biggest “taker” of federal subsidy dollars from the program from 2005 to 2014, when it raked in nearly $900 million. Despite the substantial subsidies, government numbers show wind energy supplies just 4.7 percent of the nation’s electricity.
Raising Other Taxes
Byron Schlomach, director of the 1889 Institute in Oklahoma, praises Fallin for doing what she can to even the playing field between different sources of electric power, but he worries about other tax increases in the governor’s budget plan.
“Gov. Fallin’s call for ridding the state of its refundable wind tax credit is commendable,” said Schlomach. “Wind generation should stand or fall on its own, just like every other industry should do, based purely on their own economics. It’s too bad the federal government keeps feeding that beast.
“Unfortunately, Gov. Fallin’s wind generation tax is part of a larger program to increase taxes in general, but she would at least put all electricity on an equal state-tax footing,” Schlomach said.
Lessons for States, Legislators
Bolema says there’s a bigger takeaway from Oklahoma’s experience other states should note: Targeted tax incentives of today are likely to bust state budgets tomorrow.
“When current officeholders are considering creating new tax credits, they are tempted to think only about the current political benefits and not about how the state budget will be affected years later, when they may be out of office,” Bolema said. “Hopefully, state policymakers and watchdog groups can learn from these experiences with tax credits in Oklahoma and in other states and remember that tax cuts that seem like free money when they are created have a great cost a few years later.”
Manhattan Institute Senior Fellow Robert Bryce agrees Oklahoma must address wind subsidies to stay solvent, but he doesn’t expect the wind industry to go away quietly.
“Once the rent-seekers start collecting subsidies, they’re nearly impossible to stop,” said Bryce. “For proof of that, look at the corn-ethanol scam. Once an industry succeeds in rent-seeking, whether through subsidies or mandates, they’re going to fight like hell to continue to keep them.”
Kathy Hoekstra ([email protected]) is a regulatory policy reporter for Watchdog.org.