Bad Policy Built on Bogus Study

Claims by the wind industry that another year-long extension of the production tax credit (PTC) would create American jobs are based on “self-serving industry interviews and unsupported wind capacity forecasts that have no credibility,” according to a recently completed study by the American Energy Alliance (AEA) and the National Center for Public Policy Research (NCPPR).

Additionally, the report finds that analysis conducted for the wind industry by Chicago-based Navigant Consulting significantly overestimated the number of jobs that would be lost as a result of scheduled expiration of the PTC on Dec. 31, 2012. Congress voted to extend the subsidy at a cost of over $12 billion during last year’s fiscal cliff negotiations.

The study, “Inflated Numbers; Erroneous Conclusions: The Navigant Wind Jobs Report” lays bare the macroeconomic distortions and faulty modeling that the wind industry used to justify continued payments of its taxpayer-funded corporate welfare.

According to the Navigant study, the U.S. economy stood to lose 37,000 jobs in 2013 if the PTC were to have expired. Yet our analysis demonstrates that Navigant misapplied models used to substantiate this claim, with the result that potential direct job losses were inflated by at least 100% in the key states that were reviewed. As a result, lawmakers and the general public were misled to believe that an extension of the PTC would strengthen the U.S. economy. Regarding the Navigant study, we conclude, “The Report’s resulting job loss numbers are meaningless and should not be used to justify spending billions of dollars in taxpayer money to extend an unneeded subsidy for the wind industry.”

“This study confirms what we have known all along: the PTC is bad policy built on faulty economic analysis that results in a net loss for the U.S. economy,” said AEA President Thomas Pyle. “A sounder approach would be to let the free market determine winners and losers among energy sources, instead of Washington doling out billions of dollars to prop up Big Wind at great loss to the federal treasury and the U.S. jobs market.”

“Congress blundered badly when, in the deal to avoid the so-called ‘fiscal cliff,’ it caved to special interests and pressure from the wind industry for another extension of the PTC,” noted NCPPR Senior Fellow Bonner Cohen. “No amount of subsidies over whatever period of time will ever make wind power competitive against affordable, reliable, and plentiful sources of electricity generation. The PTC leads to a gross misallocation of resources in the public and private sectors. In the end, taxpayers lose. Workers lose. The economy as a whole loses.”

The study’s key findings include:

• When calculating potential job losses, Navigant used the wind industry’s self-serving, inflated forecasts for wind capacity “lost” without the PTC, which exceeded the federal government’s forecasts by as much as 55%.
• Navigant’s analysis also incorrectly applied one model to determine direct job losses in key states, inflating them by at least 100%. Incorrectly applying another model resulted in questionable multipliers that inflated job loss estimates by at least another 72%.
• The Navigant report narrowly focuses on supposed jobs lost in the wind industry if the PTC isn’t extended but completely ignores the U.S. economy as a whole. If new generating capacity is needed and jobs are the measure, other sources of electricity, such as coal, nuclear power, or natural gas, would create more direct jobs than wind power for an equal amount of new generating capacity. In a separate May 2010 report, Navigant actually acknowledged that wind power produces fewer jobs, direct and indirect, than other sources of electricity for an equivalent amount of capacity.
• Subsidizing wind is very costly per job created. A one-year PTC extension would cost as much as a staggering $4.8 million for each direct wind manufacturing and construction job added.

—Charles J. Cicchetti, PhD is a senior advisor to the Pacific Economics Group, and Navigant conducted the study. Dr. Cicchetti held the Jeffrey and Paula Miller Chair in Government, Business, and the Economy at the University of Southern California. Cicchetti was the deputy director of the Energy and Environmental Policy Center at Harvard University’s John F. Kennedy School of Government. He was professor of economics and environmental studies at the University of Wisconsin, Madison from 1972 to 1985. He was also the first economist at the Environmental Defense Fund and did post-doctoral research at Resources for the Future. Dr. Cicchetti chaired the Wisconsin Public Service Commission from 1977 to 1980 and previously directed the Wisconsin Energy Office. This commentary originally appeared on the NCPPR website and is used by permission, with minor edits for style.