On October 26, a long list of conservative think tanks and activist organizations sent a joint letter to Republican Majority Leader Mitch McConnell (R-KY) and House Speaker Paul Ryan (R-WI) expressing “strong opposition” to extending $1.4 billion worth of expiring tax credits for renewable energy in the upcoming lame duck session of Congress. While conservatives are right to rail against subsidies in principle, they manifest hypocrisy when they offer a principled, free market argument against some energy subsidies while silently embracing or ignoring others. Moreover, their opposition to more sensible climate policy is what cements the tax breaks that are the subject of their ire.
Let’s start with the appearance of hypocrisy. How many of the 47 organizations that signed that letter have likewise gone out of their way to shake a principled, free market fist at the $3.7 billion worth of tax breaks going to the fossil fuel industry every year? More broadly speaking, how many have spent time and energy railing in joint letters to Congress against the manufacturers domestic production tax credit (which will cost the Treasury $146 billion from 2016-2025)? Or accelerated depreciation of machinery and equipment ($228 billion over that same period)? Or heck, the deferral of income from corporate profits earned overseas and subsequently reinvested there ($853 billion)?
If renewable energy tax credits, as these organizations charge, are “a distortion of the tax laws for special interests,” who “should be able to stand on their own in the marketplace,” aren’t tax breaks for fossil fuel companies, domestic manufacturers, etc., likewise “a distortion of the tax laws for special interests” worth condemning? Particularly when those tax breaks are far larger than the breaks at issue here?
The smell of hypocrisy—or perhaps, compartmentalized thinking—is all the stronger given that some of these same organizations have argued that preferential tax treatment for fossil fuel energy production is perfectly defensible and—despite what every economist on planet Earth would tell you—not really a subsidy at all. Others have argued that eliminating tax preferences = tax increases = violations of conservative principle! One has to be an intellectual gymnast to marry these arguments with a principled opposition to renewable energy tax credits.
Now, to be fair, the conservatives’ joint letter suggests that maybe they aren’t flatly against all energy tax credits in principle. In the course of arguing that “Government subsidies, loans, mandates, and tax policies regarding renewables have consistently failed to deliver on their promises of long-term job creation and economic viability,” they imply that, had those subsidies produced lots of jobs, their objections might vanish.
It just so happens, however, that the claim that renewable energy tax credits has not yielded long-term job creation is flatly and screamingly incorrect. Today, as many jobs are tied to the wind energy industry as are tied to coal mining. The solar energy industry, meanwhile, employs three times more people than does the coal sector. Given that the renewable energy industry would only be a fraction of what it is today without these tax credits (something that renewable energy supporters and critics agree about), “long-term job creation” is exactly what these tax credits have delivered.
What makes this doubly-rich is that many of these same conservative organizations signed on to a joint letter earlier this year supporting a House resolution against carbon taxation because it would lead to higher energy prices. One can’t read that letter, or the resolution that it championed, without concluding that lower energy prices is the sine qua non of conservative energy policy. And yet, eliminating renewable energy tax credits would raise energy prices. That’s because the tax credits lower renewable energy production costs, and those lower production costs reduce electricity rates.
Moreover, every single analysis that has examined the potential cost of the administration’s Clean Power Plan has found that compliance costs are much lower if renewable energy tax credits are extended.
If keeping energy prices down is a reason to oppose carbon taxes, why isn’t it also a reason to defend renewable energy tax credits? Just to be clear, I don’t find jobs creation or lower energy prices a sufficient justification for tax credits. But many of these organization do offer those arguments as justifications for embracing this or that energy policy.
The main rationale for renewable energy tax credits, however, is not to create jobs or to keep energy prices low. The main policy objective is to displace fossil fuel production and, thus, to reduce greenhouse gas emissions. This is not mentioned, or even hinted at, in the conservative letter. And without that context, it’s impossible to say whether the tax credits at issue are worth embracing or not.
If these conservatives want to be on firmer ground, they might argue that reducing greenhouse gas emissions via renewable energy tax credits is a rather ineffective strategy. A 2012 study published by the Pew Charitable Trusts, for instance, concludes that all of the federal spending and tax expenditures serving to reduce greenhouse gas emissions only reduced total U.S. emissions by 1.4 percent in 2009. The problem is that, because renewable energy tax credits reduce electricity prices, they also increase electricity demand, which offsets the emissions reductions that might otherwise be achieved.
These credits are also costly. A recent study by economists for the National Research Council concluded, in passing, that the cost of reducing greenhouse gas emissions with these credits is around $250 per ton, about six times the social cost of carbon (as calculated by the Obama White House). A $250 per ton price tag for emission reductions is defensible given that the carbon tax necessary to keep global warming below 2 degrees Celsius (a very prudent goal) is, in the longer run, at about that level. But it’s also true that mitigation via tax credits is a lot more expensive than other emissions reductions strategies we might adopt.
Unfortunately, embracing more cost-effective mitigation strategies is something that these organizations cannot (yet) bring themselves to do (at least publicly) given their reluctance to embrace mainstream climate science. But even if the skeptics are right that the extent of future warming is likely overstated, that doesn’t add up to a case against climate action. “Lukewarming” (their term) will still produce significant costs and impose non-trivial risks. By completely ignoring the problem that renewable energy tax credits are intended to address, conservatives weaken their case.
Conservative opposition to efficient first-best policy alternatives to address climate change (carbon pricing) has forced proponents of climate action to embrace second-best alternatives such as these. And these second-best policies are politically difficult to dislodge. As University of Texas law professor Gary Lucas has recently pointed out, “Conservative policymakers would be better off supporting a carbon tax and steadfastly opposing inefficient policies. The current strategy of opposing any and all government action is not working and is likely to pave the way for the costly regulations and wasteful subsidies that conservatives deplore.”
In short, conservative policy organizations have only themselves to blame for inefficient policies like the renewable energy tax credits at issue. Until they abandon their “just-say-no” policy towards climate action, they will continue to be on the losing end of political skirmishes such as this.