On the Rumored Oil Exports for Wind PTC Extension Swap: It Could Be Worse

by William Yeatman on December 15, 2015

in Blog

Today rumors picked up speed that parties to the spending bill negotiations have reached some sort of deal, pursuant to which a relaxation of restrictions on oil exports would be traded for an extension of the wind energy industry’s primary subsidy, known as the production tax credit (“PTC”).

As the Brits say, this is a very sticky wicket indeed. For my part, I oppose trade restrictions and subsidies, so I’m pro-oil exports and anti-wind PTC. In a thoughtful post, my colleague Marlo Lewis suggests that the deal isn’t worth it, because the harm wrought by the wind PTC is amplified by its synergy with the Clean Power Plan. In his post, Marlo operated under the assumption that the alternative to the rumored deal is for nothing to happen. In this post, I want only to demonstrate that the alternative could be the worst of all worlds—that is, in the absence of a deal, we could end up with an extension of the wind PTC but without a loosening of oil export restrictions.

Here’s how it could happen.

On the one hand, the Obama administration opposes ending the oil ban, so it likely would veto such a standalone bill.

On the other hand, the wind PTC has a long history of passing as part of the tax extenders package, which, like the budget, is a “must pass” bill because American businesses don’t mind if others get tax goodies as long as they get their own tax goodies, and, as a result, they all agree on the need for a tax extenders package. Accordingly, this bag of tax goodies is a congressional priority, regardless which party is in charge. This unfortunate dynamic renders the wind PTC immune to rational policymaking.

Consider the brinkmanship over the omnibus in 2013. During those negotiations, the wind PTC was thought to be on the chopping block (i.e., everyone thought it would be allowed to expire). Even the wind lobby saw the writing on the wall. Instead of seeking a full extension, the American Wind Energy Association proposed a phase out of its primary subsidy. Thus, the negotiating positions seemed to be: 1) end the wind PTC or 2) phase out the wind PTC. Logically, you would expect a final deal somewhere in between these poles. But the final agreement included an extension of the full PTC!

Remember as well that in July, the Senate Appropriations Committee voted for an extenders package that included a wind PTC. The bill, depressingly, had strong bipartisan support. To be sure, that was only a two year extension. The rumored swap would entail a 5-year extension. But given recent history, there is every reason to be suspicious that a final tax extenders package would include a full extension of the wind PTC for five or even ten years.

The upshot is that there’s a possibility that, absent a wind PTC-oil export swap, we’d get a full wind PTC long term extension and no relaxation of the oil export ban.

Ending note: How crazy are politics in the House? You’d think: Isn’t there a GOP majority? Why don’t these fiscal conservatives let the wind PTC die and also end the oil export ban?

The problem is that the GOP conference won’t go along with any deal that raises the budget ceiling. (N.B. I think that’s the crux of it, as I admittedly am ignorant of much of the byzantine budget/appropriations process). So Speaker Ryan needs Democrat support, the cost of which is the deal at hand. ​ Isn’t it bizarre that appropriating–the House’s #1 job–is a function of what Minority Leader Rep. Pelosi demands?

Doug December 16, 2015 at 1:39 pm

“Why don’t these fiscal conservatives let the wind PTC die..?” Because all the wind energy, investment, etc, is in red states, and they are making tons of money and creating a lot of business. But they have to hide their actions from a majority of their party who want to burn more expensive coal for reasons undefined, but apparently related to God’s wishes, and everyone has to play along with this game where the dems take blame for whatever R’s are too fearful to stand up for.

I think the better question is why don’t Reps, whether D or R, just be honest. So what if it costs their DC job?

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