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The Great Wyoming Wind Tax Debate

Last week in my post Google Likes Wind. Shouldn't Arizona? I briefly mentioned the fact that the Wyoming legislature passed a new tax on wind producers in that state - the first move of its kind in the nation.  The new tax, set to take effect in 2012, has set off a windstorm (I couldn't help it!) about the pros and cons of taxing wind energy.

First, the details.  The new tax is a wind electricity generation tax of $1 for every megawatt-hour of electricity produced.  Also, Wyoming's policymakers have allowed the state's sales tax exemption on renewable energy equipment to expire as of 2011; so sales/use taxes of up to 6 percent will be required on wind turbines.  Finally, lawmakers have actually been talking about increasing the generation tax from $1 to $5 or $7 per megawatt-hour.

I see clearly the rationale for a wind generation tax: if the state (or other public entities) incur costs from Wyoming's wind farms - building roads to remote areas where these farms are located, for example - then it seems completely logical that the entity benefiting from the farm (i.e. the wind power producer) reimburse the public for those costs.

But here's the real question: Will a wind tax push wind power producers out of Wyoming, into other Rocky Mountain states?  If we were talking about coal, the answer would be no: Wyoming has a relatively monopoly on coal in the Western U.S.  But, while Wyoming is very windy, it doesn't have a monopoly on the wind. 

And certainly Wyoming would rather have wind power producers paying $1 per megawatt-hour (or even $0) than no wind producers at all.  (Wind farms generate other benefits for the state and local governments and their citizens: construction jobs, long-term operations and maintenance jobs, property tax revenue, and lease money paid to landowners.)

On one side, proponents of taxing Wyoming's wind power producers say that, as the eighth-windiest state in the nation, according to the American Wind Energy Association, Wyoming will remain a desirable location for wind farms even as it taxes producers (and shrinks their profits).

Proponents point to a study commissioned this summer by the Wyoming legislature to compare the overall cost of wind energy generation and cost to deliver power in Wyoming to other states.  The study, conducted by the independent consulting firm E3, found that Wyoming remains the most competitive among states likely to export wind power to the Southwest, even under scenarios involving raising the generation tax.

On the other side, opponents of taxing wind in Wyoming point to another study, also commissioned this summer by the state legislature, this time conducted by the Wyoming Power Producers Coalition (made up of 13 energy companies).  That study found that the current tax structure for wind energy in Wyoming far exceeds taxation in Montana, Colorado, Utah, Idaho, South Dakota and New Mexico.

So who's right?  The answer lies in balancing the advantages Wyoming offers with its tax rate, as they compare to other Western states.  If Wyoming has much higher-quality wind, it can charge higher taxes and still remain an attractive place for wind farms.  But at some tax rate, the state's competitive wind advantages no longer outweigh its higher tax rates, and the producers move elsewhere (then Wyoming doesn't have the cake, or get to eat it either).

At the end of the day, it's all about economics.  It takes me back to the reason I went to Wyoming in the first place, after graduating college: to study and evaluate the economic impacts of coal mining.  The question: At what tax rate is it no longer economically beneficial for wind power producers to develop wind farms in Wyoming? is a fairly easy one to answer.  The hard part is getting past the politics.

Written on Wednesday, 27 October 2010 16:53 by Gary Yaquinto

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