By Garland Tucker and Francis De Luca
North Carolina taxpayers are about to get stuck with a big bill – if the General Assembly continues the state’s “Renewable Energy Portfolio Standard” (REPS) and renewable energy tax credit policies.
Those policies are a key issue in the ongoing budget debate. The Senate spending proposal calls for the elimination of these policies, while the House budget assures their continuation. But the ineffectiveness and costs of the REPS and renewable energy tax credits are compelling reasons to kill the programs.
Under the North Carolina program, utilities are required to meet mandated levels of electric generation through the use of “renewables,” such as solar and wind energy. Renewable energy tax credits sweeten the pot for the industries involved.
In 2007 the legislature adopted these policies under the dubious premise that this was the best path to reducing carbon emissions. But since 2005, North Carolina has achieved an impressive 20 percent reduction in carbon emissions, and virtually none of this reduction is attributable to REPS. Instead, almost all of the carbon reduction is attributable to the recent fracking boom. It has produced cheaper natural gas, making it economically possible to replace coal-fired units with more efficient and cleaner-burning natural gas power plants.
Nor are these renewable energy sources economically feasible on their own. For example, in a recent Financial Times interview, Bill Gates, though he is a believer in climate change, admitted that renewable sources are unreliable because they depend on the weather. And they are currently more expensive, especially when you add in the extra costs of transmission lines (grid) upgrades and the required traditionally fueled generating plants on standby to pick up the load when the wind dies down or clouds block the sun.
For renewable sources to achieve significant de-carbonization, the costs would be “beyond astronomical,” Gates said. There is no evidence that renewable sources can currently compete in the market without legislative mandates and substantial handouts. Gates called for the development of new technology, rather than continued government subsidization of economically inefficient renewable sources.
Because electric utilities are regulated monopolies, they simply pass increased costs through to you – the ratepayers of North Carolina. And there are other costs. North Carolina has one of the most generous tax credits for renewables in the United States. While the federal government gives a tax credit of 30 percent for building wind or solar projects, North Carolina tacks on a more generous 35 percent credit for them. From 2010 through 2013, total tax credits to businesses and individuals totaled over $500 million. (Figures for 2014 have not yet been released).
Do these credits at least help energy entrepreneurs? Not necessarily. These credits are often sold to companies for cash, and the largest users of these credits are actually big banks and insurance companies. Why should the average taxpayer have to foot the bill for providing these tax credits to companies such as Blue Cross Blue Shield, BB&T, and Duke Energy? These credits mean everyone in NC pays higher taxes so a few giant corporations receive the tax breaks.
We are likely to see over $1 billion in credits granted in 2015 and even more in the next few years as new wind projects come on line. The “Desert Wind” project to be built in Northeastern NC will alone generate near $140 million in renewable energy tax credits if construction estimates are accurate. This is equal to nearly all of the business credits issued in 2013.
Many taxpayers do not understand that these tax credits come dollar for dollar from their pockets. The hundreds of millions of dollars in total tax credits granted per year are a whopping cost for the hardworking people of our state to bear.
North Carolina is the only Southern state to have a REPS program and the only state in the nation to have such a program with no caps on the total amount of tax credits offered. As every North Carolinian knows, our state is in a continuing struggle with neighboring states to attract new industry. Yet our renewable policies are driving up the cost of electricity and killing the creation of new jobs.
Legislative mandates and tax credits for a specific industry, such as renewables, distort the market. They also incentivize those getting the tax benefits to hire lobbyists to ensure the revenue stream continues flowing. Without these tax breaks and mandates, their business model does not work.
Political patronage and well-connected businesses win while taxpayers and ratepayers lose. That’s why REPs and renewable tax credits are wrong for North Carolina.
A version of this article appeared in the Triangle Business Journal.
Garland S. Tucker III is the CEO of Triangle Capital Corporation, a publicly traded company based in Raleigh. Francis X. De Luca is the President of the Civitas Institute, a Raleigh-based think tank.