Carbon Fee or Production Tax Credit? Laser Talk

Over the past 20 years the production tax credit (PTC) has provided critical support for the development of wind energy production across the country, which has grown to over 50 times its original capacity during that time [1]. As of a result, the price of wind is now affordable even without a PTC [2].

A gradually increasing carbon fee will be a much more powerful mechanism for creating future investment in wind energy than an annually uncertain production tax credit.

A carbon fee creates price certainty [3] and future price expectations drive investment more than current prices [4]. America’s demand for affordable and clean energy will help drive down the cost of wind energy even further than it is today.

For comparison, and ignoring likely reductions in the future cost of wind energy, CCL’s proposal would make up for the PTC competitive difference in just 2 years for coal, 3 years for oil, and 4 years for natural gas [5]. After that time, the question really becomes who wouldn’t want a wind turbine in their backyard?

Calculations

The following calculations were made to determine the carbon price at which wind would retain the advantage it has over power derived from coal, oil, and natural gas afforded by the production tax credit for wind ($0.023 per kilowatt hour (kWh) OR $23 per Megawatt Hour (MWH) [1]). We assume each MWh (Megawatt Hour) of energy produced from:

  • Coal releases 1.1245 short tons of CO2 [2]
  • Oil releases 0.836 short tons of CO2 [2]
  • Natural Gas releases 0.5675 short tons of CO2 [2]

‘Y’ represents the carbon price.
‘Z’ represents the tons of CO2 released per MWh of energy produced

($Y per ton of CO2)×(Z Tons of CO2 released per MWh)=($23 per 1 MWh of energy produced by wind)

Using the above equation, tons cancels on the left hand side of the equation, leaving units of $ per MWh on both sides. By solving for Y (divide both sides by  Z):

  • Y=$23 ÷ 1.1245 = $20.45 per MWh for Coal
  • Y=$23 ÷ 0.836 = $27.51 per MWh for Oil
  • Y=$23 ÷ 0.5675 = $41.53 per MWh for Natural Gas

Skeptic Claims and One-Liners

Carbon Fee Skeptic Claim: Shouldn’t you be focusing more on tax credits for renewables?
One-Liner: At $21 per ton of CO2, wind is cost-competitive with coal even without the production tax credit.

  1. http://www.eia.gov/todayinenergy/detail.cfm?id=8870
  2. “Wind energy still beats out advanced coal, advanced nuclear, biomass, and solar technologies if you add $22 per MWh.”
  3. “Tax Credit in Doubt, Wind Power Industry is Withering” By DIANE CARDWELL Published: September 20, 2012
  4. Daniel Kahneman and Amos Tversky, Prospect Theory: An Analysis of Decision under Risk, (Econometrica, 1979): “[P]eople underweight outcomes that are merely probable, in comparison with outcomes that are obtained with certainty.”
  5. The Revolution of Now: The Future arrives for four clean energy technologies. Department of Energy. Sept. 2013. Page 2 figure.