Wind Industry Should Mull Tax Credit Phase-Out, Baucus Says

The wind energy industry should think “very seriously” about backing a proposal to phase out a tax credit for building more energy-generating turbines, U.S. Senate Finance Committee Chairman Max Baucus said today.

The Montana Democrat said in an interview that phasing out the tax credit might be the most realistic way to keep it from expiring altogether at the end of the year. Companies that invest in wind energy include General Electric Co. (GE), based in Fairfield, Connecticut, and Denmark’s Vestas Wind Systems A/S (VWS).

“The industry needs a little boost, but that boost can’t last forever,” said Baucus, the Senate’s chief tax writer. “The more the industry can figure out a way to proceed by cutting back, phasing out, the better it’d probably be.”

Baucus said his office has been talking with industry representatives about backing a phase-out approach.

The production tax credit provides an incentive for installation of wind turbines, based on the number of kilowatt- hours generated. For wind, the credit will cost the government $1.3 billion in fiscal 2012, according to the congressional Joint Committee on Taxation. Similar credits are available for energy produced from other renewable sources.

The tax credit for wind is costing the government 1.3 billion in fiscal year 2012, according to Congress’s Joint Committee on Taxation. Photo: Ariana Lindquist/Bloomberg Close

The tax credit for wind is costing the government 1.3 billion in fiscal year 2012,... Read More

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The tax credit for wind is costing the government 1.3 billion in fiscal year 2012, according to Congress’s Joint Committee on Taxation. Photo: Ariana Lindquist/Bloomberg

Given the tight budget outlook, the idea of phasing out the wind credit rather than extending it has drawn support from Republican senators.

‘Glide Path’

“I’ve talked to the industry about that,” Senator John Thune of South Dakota, a member of the Republican leadership, told reporters today. “If you can demonstrate a glide path to getting where you don’t need the credit any more, phasing it out over time, I think it’s going to be a lot more palatable politically to try to get an approach like that through.”

The industry hasn’t endorsed a phase-out of the credit. Denise Bode, chief executive officer of the American Wind Energy Association, a trade group, said, “A full one-year extension in the first part of this year remains the wind industry’s top priority.” Bode added that the group “is committed to looking at a variety of options for the tax credit in the future.”

Because turbines must be placed in service by the end of 2012 to qualify for the credit, the industry and its advocates in Congress say action is needed soon to prevent investment from drying up.

Expiring in Spring

“As a practical matter, wind is going to expire really in the spring of this year,” Senator Charles Grassley, an Iowa Republican who has proposed a two-year extension of the credit, told reporters March 13. “They’re going to shut down all the component manufacturing because you aren’t going to manufacture for inventory if you don’t think they’re going to be used.”

Senator Kent Conrad, a North Dakota Democrat who supports the tax credit, said March 15 in an interview that he would “want to see the specific proposal before reacting to it.”

“We are making great progress at getting wind to be almost viable without help, but we’re not there yet,” Conrad said. “So the devil would be in the details.”

Another Finance Committee member, Senator Ben Cardin, a Maryland Democrat, said he would prefer to extend the current credit.

“It would be, I think, ill-advised to start talking about a finite policy on wind without knowing how it affects the other sources of energy,” Cardin said today in an interview. “So I’m for a straight extension. I think that gives us the time to try to come up with a rational energy policy.”

To contact the reporter on this story: Kathleen Hunter in Washington at khunter9@bloomberg.net

To contact the editor responsible for this story: Katherine Rizzo at krizzo5@bloomberg.net

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