Long-term gain for Maine is the most important economic aspect of wind power.
by Charles Colgan and Gary Hunt
Discussions about commercial wind power development in Maine focus partly on economic issues and partly on environmental issues.
The environmental impacts of wind development are very much tied to specific sites, so it is difficult to draw generalizations about those impacts across all wind power projects.
The economic issues are fairly common across all projects, but media discussions of wind power economics often overemphasize the least important economic aspects while distorting the most important aspects.
The most common economic questions about wind projects have focused on jobs. In fact, building Maine wind power projects has been an important activity over the last several years, supporting more than 500 jobs in construction and related services in 2008 and 2009 at a time when the economy lost 30,000 jobs. The job impacts have been largest in rural areas where the needs are greatest.
But construction is a short-lived stimulus; the real question is what does Maine get in the long term. We get needed electricity with no fuel costs, thereby avoiding the price volatility that comes with fossil fuels, and no air emissions, thereby avoiding the associated health and environmental damages whose costs are hidden under our current electricity pricing policies, as documented in a 2009 National Academy of Sciences report.
A properly functioning electricity market would include these hidden costs in the price of electricity from all sources, so that the price we pay reflects the full costs to society. However, currently we pay those health and environmental costs not in our monthly utility bills, but, for example, in our medical bills — Maine has some of the highest asthma rates in the nation, and several counties routinely receive failing grades for outdoor air quality.
So fossil fuels appear cheaper than they actually are because their prices are distorted. Another reason is that new energy technologies are expensive when first deployed, but become less expensive over time as research, development and deployment lower costs. Wind power can appear less competitive than it actually is if many of the real costs of fossil fuels are hidden, and if future cost savings forthcoming from wind power are not recognized. As a nation, we attempt to make up the difference with supports for wind power development, which have been called “subsidies.”
These subsidies attempt both to compensate for the hidden cost problem, thereby leveling the playing field for wind power, and to make it possible to realize future cost savings through RD&D.
Subsidies currently exist for fossil fuels too, although these have little economic rationale. Subsidizing fossil fuels is subsidizing the health and environmental damages that their emissions create. In addition, fossil fuel industries are mature and have already realized the lion’s share of benefits from RD&D.
According to a 2009 study by the Environmental Law Institute, fossil fuels received $72.5 billion in federal subsidies between 2002 and 2008. During that same time period, renewable energy projects received $29 billion.
Federal tax subsidies and other incentives are an important part of developing various energy technologies, and should be evaluated based on measurable benefits relative to costs, including environmental and health impacts and future cost savings from RD&D.
Federal dollars have been used over the past 80 years to build and maintain the vast hydroelectric generation that powers most of the western United States. Moreover, a recent peer-reviewed study estimates that during the 60-year period between 1947 and 2007, the nuclearpower industry received $175 billion in federal subsidies; and the coal industry received $40 billion in subsidies between 1994 and 2007. These compare to $5 billion for wind power over the 25-year period between 1974 and 2007.
We have choices to make about our energy future, and those choices should take all costs into account — those that show up in the market prices we pay for energy and those that remain hidden but nevertheless adversely impact us and our environment.
All benefits should also be considered, including future cost savings that can accompany industry RD&D. Complaints about “subsidies” to wind power merely prolong our inability to create a safer, cleaner, more reliable and less costly energy system in Maine.
Maine has historically relied on a mixture of renewable and nonrenewable electricity resources, and will continue to do so in the future. The mix will change, with wind power being added to hydropower, and natural gas increasingly providing base load power. Getting the economics right will assure we get the right mix for the economy and the environment.
Charles Colgan is a professor of public policy and management at the University of Southern Maine. Gary Hunt is a professor of economics at the University of Maine.