Just back from an interesting panel on manufacturing where we had a good talk about the role of government in the sector. I again stressed the economic rationale for government’s role in overcoming barriers that no single firm could overcome, like R&D, coordination across place and sectors, access to credit for unproven innovative initiatives, and unfair trade practices by global competitors.
In that context, I was reminded of what a Rorschach test this graph is. It shows how responsive American investment in wind capacity is to the production tax credit (PTC), a tax incentive provided to companies to nudge them towards investing in alternative energy sources.
When the PTC expires, the bars go to about zero. When it’s on, they go up.
You could look at this and decide wind power is a non-economic investment in America—firms won’t do it without a tax incentive. Or you could decide that if we want to build a domestic wind power sector, it will take a number of years of help through the tax code to stand one up. Your decision should also be informed by the fact that a number of other countries, both advanced and emerging economies, have decided to invest big in clean energy.
Eric Spiegel, CEO of Seimens, argued the latter…no surprise there, but he stressed it should be temporary, until the sector is able to profitably stand on its own.
I’m with him on that point. I look at the graph and see that gov’t support of wind power is necessary to develop the sector and help firms overcome the types of barriers noted above. But I understand the other argument: hey, if other countries want to subsidize the heck out of this stuff, let them do so and we’ll reap the benefits, paying lower costs for their products.
If you think of Americans as primarily consumers, you’ll buy the latter point. If you think of us as workers who need good jobs in a new, growing, clean energy sector, you’ll buy the former. And yes, we’re both, so it’s a matter of how you weight the options.