Updated 1/2/2013 with the credit's legislative developments.
While “fiscal cliff” negotiations are happening in the nation’s capital, a lesser known issue is also on the table. And depending on the outcome, thousands of jobs in Missouri could be at stake.
Gerald Nickelson is a worker at CG Power Systems in Washington, Missouri. As he walks around the factory, he points out a line of workers in front of a machine, wrapping coil. Later, the coil will be housed inside a green metal tank and shipped off as a complete transformer.
"A huge drop."
The wind industry makes up a large portion of CG Power Systems’ business -- normally around 25 percent of its production. But Joshua Yun, the VP of sales, says that’s not the case anymore.
“We’ve seen a huge drop," Yun said. "And when I say huge we're talking a minus 80 percent drop.”
Yun says CG has seen a dramatic drop in the orders for wind turbine transformers.
“Right now, we're not even seeing requests for quotes anymore,” Yun said.
Last year, CG took in between $15 million and $20 million from the wind industry. This year? They don’t even expect to reach $1 million.
CG employs about 450 Missourians. The company is a big player in the wind industry. Yun brags that one third of all turbines in North America have transformers made by his company.
And CG isn’t the only company in the wind business seeing a drop in revenue this year, it’s a marked trend in the industry. CG hasn’t laid off any workers yet, but other businesses have.
So why is this happening? How could there be such a dramatic drop in just one year?
The reason is because of a tax credit: the federal wind production tax credit, commonly referred to as PTC. It’s been in place for 20 years and is set to expire in a couple of weeks. It’s estimated that about 37,000 jobs are supported by this credit, roughly 2,000 of which are in Missouri.
What the credit does is subsidize the wind industry by a couple of cents for every kilowatt hour a turbine generates. The credit makes it more alluring for businesses to create wind farms, which in turn helps manufacturers like CG who create parts.
The wind-rich and the wind-poor
But not everyone supports the credit. Bonner Cohen works for a conservative think-tank in Washington. He argues the PTC is only helpful for a few wind-rich states -- states like Iowa, Texas, Kansas and Missouri, to an extent.
“Yes it does create certain jobs in those states," Cohen said. "The rest of the country, the 80 percent of the country that live in states that are wind-poor, they’re subsidizing the 20 percent.”
It's estimated that renewing the PTC would cost about $12 billion over a period of 10 years.
“The production tax credit is applied across the board," Cohen said. "Everybody pays for it, even those who derive absolutely no benefit from it whatsoever.”
He also argues the tax credit is unnecessary, and points to requirements that more than half of the individual states have that mandate a certain portion of its energy comes from renewables by a specific date.
Missouri, for example, requires 15 percent come from renewables by 2020. Bonner says that requirement should be enough.
But it isn’t clear that it is. The PTC has been allowed to lapse a few times in the past 20 years. When it does, there’s a huge downturn in wind development,even with state requirements in place. What’s more, there’s been a recent push by lobbyists to do away with the requirements in many state legislatures.
Regardless, Cohen says an industry subsidized for 20 years should have to stand on its own feet now.
Layoffs
But back at CG Power Systems, Gerald Nickelson says real jobs are at stake.
“We (CG) haven’t seen that too much, where we’d have to lay people off," Nickelson said. "But if this production tax credit doesn't go through, that may happen to us.”
It’s an issue that doesn’t always fall across party lines. Democrats like the idea of renewables, but some Republicans support the law because it’s economically beneficial for their state.
Below is an interactive map of where Missouri's Representatives stand on the Production Tax Credit. Green signifies the Representative supports the PTC. Blue means the Representative is against the PTC. Black means the Representative did not respond to repeated requests for comment. Democratic Senator Claire McCaskill has also voiced her support for the PTC.
View Wind Production Tax Credit in a larger map.
The PTC was originally signed into law by the first President George Bush, after all. And President George W. Bush extended it, saying it was important in becoming energy independent.
But Yun and Nickelson say a lot of damage has already been done. Renewing it won’t recoup the $14 million production shortfall they had this year. They say what the industry needs is a long term commitment.
And will the production tax credit go through? It’s hard to say. Most agree that its fate is tied to the fiscal cliff, which has the same deadline as the PTC.
And with discussions taking place, everything is on the table, including the production tax credit.
Update:
The production tax credit was given a one-year extension as part of the fiscal cliff deal that passed through Congress. John Hickey, president of the St. Louis chapter of the Sierra Club, called the extension "good news" that will protect 30,000 wind jobs nationwide. The Sierra Club is an environmental organization that supports the PTC.
Below is a map that outlines where manufacturing jobs associated with the wind industry are located.
View Wind PTC Jobs in a full screen map
Follow Chris McDaniel on Twitter: @csmcdaniel
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