The debate about the green energy tax credits and their treatment in the OBBB have generated a significant wonkish debate.

Center-left econblogger Noah Smith wrote in favor of the credits, casting the debate in simplistic terms: apparently the Administration wants to remove them for "culture war" reasons, and, furthermore, this will make energy more expensive, which is bad. The latest Senate version of the bill would also add a tax on solar and wind.

That last point merits serious consideration. A huge part of the Administration's strategy for reviving American dynamism is making energy cheaper. Could it be that significantly reducing wind and solar tax credits will reduce energy supply and increase energy prices?

Of course, it's not just wonks that are coming out in force. Industry groups, predictably, but also some unions, and even Elon Musk, whose business interests are of course related to so-called clean energy.

Another reasonable criticism has to do with grid reliability. The idea here is that solar and batteries, in particular, are necessary for keeping the grid stable and reliable in case of fluctuations in demand and supply.

First, let us clarify what is being talked about. There are several issues here.

The House version of the OBBB uses a "placed in service" standard to determine eligibility for tax credits, which means that new solar and wind projects would no longer be eligible for credits but existing ones would be grandfathered in. Meanwhile, the Senate uses a much more nebulous "construction began" standard which, because it also includes a multi-year grace period, would essentially extend the subsidies far into the future, beyond the end of the Trump Administration, with a clear goal of extending them forever by binding future Administrations to accepting severe disruptions if they don't prolong the credits.

It's important to note the nature of those distinctions. "Placed in service" would not create significant disruptions to the grid since projects that are already connected to the grid would be grandfathered in (which is logical since the people who invested in these projects did it on the expectation of these tax credits). Meanwhile, "construction began" wouldn't be some sort of discrete investment in building out solar wind and capacity, instead it would create massive open-ended subsidies for that industry that would extend out for an indefinite amount of time.

Second, the new green and solar tax that is talked about seems like an unnecessary market distortion. The main argument against wind and solar is that they are uneconomic, therefore there's no need for a special tax.

Another important thing is to distinguish between wind and solar. These two are usually lumped together because they are "green" and because they were both part of the IRA bill. But one is much less defensible than the other.

Wind is a disaster, period. It is heavily uneconomic, since it requires building out giant windmills at enormous expense (they use very advanced materials) to produce power which is always by definition unreliable and inefficient. Windmills are also bad for…the environment since they kill large numbers of birds (between 140,000 to 680,000 birds annually, with most recent estimates around 230,000-680,000 birds per year), and are arguably (the science is still investigating this) responsible for "Wind Turbine Syndrome" caused by the rhythmic noise they produce. Also, they are an eyesore, which is also an environmental consideration.

They are simply Bad, full stop. Not only should future turbine projects stop, currently existing turbines should be dismantled.

For solar, the picture is more complicated. If you're like us, you remember that, for the past 15 years, advocates for solar power have argued that, Any Day Now(tm), solar would get cheap and efficient enough to swamp all other energy sources. That hasn't happened, even with China taking over the vast majority of the manufacturing of solar panels and dumping them on us at below cost.

That being said, it is true that the cost of solar has been slowly improving over time, as well as the efficiency. It's not quite Moore's Law, but it is encouraging.

What is more, there is a fundamentally compelling aspect to solar as an element on the grid which is that if people and factories have solar on their own facilities, that adds resiliency to the grid.

These create a non-farcical argument in favor of subsidizing solar: first, because it is heading in the right direction where it can provide cheap abundant clean energy on its own without subsidies, but needs to be built out before that can happen; second, because the market is not great at pricing in the need for reliability, which is an interest of the common good which goes beyond economic efficiency.

Indeed, Smith argues that solar and batteries have made the Texas grid more reliable. He cites figures to the effect that peak risk hours have dropped from over 10% to under 1% due to new solar/battery resources in Texas. He points out that solar is well-suited for peak summer afternoon demand when AC usage is highest, and batteries help during evening ramps when solar drops off.

Contrary to this assertion, energy activist Alex Epstein argues that it's the other way around. In his account, subsidies create artificial demand for unreliable solar power. This leads to insufficient dispatchable or reliable capacity, which in turn leads to the necessity of batteries, which are needed primarily to compensate for the unreliability of solar. Epstein is careful to note that he is fine with solar and batteries, but that without subsidies they would be used less and more efficiently. This is compelling: if Smith is right that solar plus batteries is particularly well-suited to the sunny places in the South of the US because of peak AC usage in the afternoon and evening, then there's no need for subsidies to get people to buy solar and batteries! They'll do it because it's cheaper!

It seems clear to us that Epstein has the better of the argument, here. The experience of Europe, and particularly Germany, seems to have conclusively proven that these forms of energy are unreliable and that therefore they make the grid more fragile, require to compensate with other (particularly carbon-intensive) forms of energy, and increase prices overall.

There is also a geostrategic argument, here: China currently dominates the manufacture of solar panels. Unless we are going to get into a "CHIPS Act" style effort to build out a massive solar manufacturing industry in the US, an idea which is not on the table, the more America builds out solar, the more it increases its dependency on China.

So, to summarize, our assessment is:

Wind is a bad form of energy, period. It is bad on every metric: too expensive, too unreliable, and bad for the environment.

Solar and batteries have their place, but subsidies are not necessary. The solar industry has been making progress, which suggests they can keep making progress in a free market and American households and businesses can equip themselves with these technologies where it makes sense for them.

A special tax on wind and solar is unnecessary. Just phase out the subsidies. Responding to a market distortion with an opposite-and-unequal market distortion is bad policy.

Rescinding the tax credits with a "placed in service" standard will not make the grid unreliable. Projects that are already on the grid will be grandfathered in, appropriately. Over the long run, unreliable sources of energy like wind (especially) and solar make the grid more fragile, not less.

Rescinding the tax credits will not increase the cost of energy. Firstly, as we mentioned, current projects are grandfathered in; future projects will change, but they are future projects. What will determine the price of energy will be the overall energy mix. Especially if you consider everything else that the Administration is doing on the regulatory front to expand energy usage, it seems hard to believe that reducing those credits would increase the cost of energy.

Policy News You Need To Know

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#Trade #OhCanada — The government of Canada has just announced that it would rescind its digital services tax ahead of trade talks with the US. This is a major concession. Perhaps President Trump sensed that a Prime Minister Carney would be more in the interests of the US than a Prime Minister Poilievre, regardless of ideology.

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SEE ALSO: The Political Consequences of Medicaid Cuts

#OBBB #Process — Need a refresher on how the reconciliation process works, exactly? It's ok, we won't tell. EPIC has produced a useful FAQ.

#Medicaid #OBBB — We have been mixed on the various Medicaid reforms floating around in the OBBB, but here's an underrelated point: when California hospitals (and presumably hospitals in other sanctuary states) treat illegal immigrants, they bill Medicaid, Mark Joffe of the California Policy Center points out. This means that the Federal government then picks up 90% of the bill for those treatments. Surely it's legitimate to stop or at least financially penalize this practice. California shouldn't be able to treat illegal immigrants at all (except for the most express needs of emergency or public health); at the very least, if they do treat them they, not American taxpayers as a whole, should pay for it.

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