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Policies, goals and objectives


and provides almost USD 4 billion in tax exemptions per year. Other US federal level annual subsidies include the USD 2.5 billion deduction for intangible oil and gas drilling, the offshore deep water royalty relief of USD 1.38 billion, and the USD 1.0 billion subsidy to the coal producing region of Powder River Basin in Wyoming. Also, the last-in, first- out accounting method allows companies to assume that the oldest, and presumably cheaper, barrels of oil remain in inventory, thereby reducing their tax burdens. State level subsidies also exist in Alaska, California, Kentucky, Louisiana, Montana, Oklahoma, Texas, West Virginia and Wyoming, which create powerful incentives for the continued use of fossil fuels. They are also part of the permanent tax code, thereby making it even more difficult to phase out fossil fuel production.


Renewable energy resources have also been subsidized in the US; however, the magnitude of the subsidies is far less than those received by the fossil fuel industry (Adeyeye 2009, Pfund and Healy 2011). Unlike federal fossil fuels subsidies that are written into the tax code, renewable energy subsidies are not permanent and must be periodically renewed (Klass 2013). Despite recent re-authorization, renewable energy subsidies are subject to future expiration, unlike their fossil fuel counterparts.


Two principal US federal instruments have supported wind and solar energy, the Production Tax Credit (PTC) and Investment Tax Credit (ITC) (DSIRE 2015). Originally enacted in the Energy Policy Act of 1992, the PTC is a tax credit based on the production of electricity from renewable resources. The policy was initially set to expire in July 1999 but was extended through 2001, until it expired again at the end of 2003. The policy was not reauthorized until October of 2004, almost expired again in 2012, before actually expiring in 2013 and 2014 (Klass 2013; Union of Concerned Scientists, N.p). In December 2015, the PTC for wind was extended for five years, with a phase-down in later years (Mai et al. 2016). The ITC for solar will continue through 2018 and taper off to a set rate in 2022. Industry representatives lauded the increased certainty provided to industry (Cusick 2015).


The pattern of deployment of wind energy facilities is consistent with the expiration of the PTC (Figure 3.2.12). Scholars have often cited this pattern to argue that policy uncertainty decreases the implementation of low carbon energy, particularly wind (Bolinger and Wiser


2009).


Considering the pattern of deployment and the time that the PTC was in force, evidence certainly supports the argument that the wind industry is responsive to this federal tax incentive and that longer periods of policy certainty, as afforded to the fossil fuel industry, would be beneficial. Thus, tax incentives are an important factor in the transition to a lower carbon electricity sector.


Growth in US non-hydro renewable energy since 2000 supports the contention that the PTC is an effective instrument for supporting wind energy, which has experienced a 22 per cent average annual growth capacity from 2002-2011 (EIA 2015). Growth for all other non-hydro renewables over the same period was 3 per cent. When compared, wind’s share of the total non-hydro renewable electricity generation capacity increased from 28 per cent to 77 per cent (EIA 2015). From 2008–2014 when the PTC was in effect, 31 per cent of all new US electricity infrastructure was for wind energy (EIA 2015).


While wind has expanded greatly and benefitted from policy stability, solar energy has experienced growth for similar reasons. The Solar Investment Tax Credit (ITC) is a 30 per cent corporate tax credit that applies to expenditure on solar energy that generates electricity or heat. This credit was extended in 2008 to 2016 and therefore provided an eight-year period of policy certainty. This level of policy support and period of time allowed the solar industry to gain a substantial foothold in the US while increasing returns to scale associated with higher production of photovoltaic solar panels and substantially decreasing the cost of materials necessary for solar energy systems. This combination has led to large-scale development of solar energy, particularly in California. Overall, utility scale solar installations grew by 68 per cent in 2014 and 99 per cent of all systems have been built since 2008 (EIA 2015):


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