Another Tax Proposal Looms Over Wyoming’s Wind Industry

Source: By Betsy Lillian, North American Wind Power • Posted: Tuesday, January 22, 2019

Once again, a bill to hike up wind power taxes has been proposed in Wyoming.

H.B.0096 – proposed last week by Reps. Jim Blackburn, R-District 42, and Timothy Hallinan, R-District 32, and Sen. Cale Case, R-District 25 – is laid out pretty simply: add a $4/MWh tax increase for wind produced in Wyoming and use the proceeds for the state’s general fund.

The bill seeks to increase the tax from $1/MWh to $5/MWh, a plan that was axed by the state’s House Revenue Committee two years ago under a similar proposed bill, which Case was also behind. In addition, a proposed $2/MWh increase was shut down in September 2016.

The newly proposed legislation would go into effect on July 1. According to estimates from the bill’s fiscal note, the anticipated revenue increases in the general fund would be $8.1 million in FY 2020, $17.2 million in FY 2021 and $17.2 million in FY 2022.

Though Wyoming’s fiscal deficit is a cause for concern, the proposed tax hike would likely have “a very minor impact” on lessening the deficit, according to Robert Godby, director of the Center for Energy Economics and Public Policy at the University of Wyoming, where he also serves as an associate professor in the Department of Economics and Finance.

Citing the Wyoming Taxpayers Association, Godby points out that wind power taxes currently account for “just over a 10th of one percent of the total state revenues Wyoming collects,” thus making the fiscal deficit argument “a weak one.”

“People who use that argument, I think, are either being misled into believing that [the taxes] could make a bigger difference than they actually would and, thereby, are overestimating the overall benefit to our fiscal situation they would have,” he says.

This misconception, according to Godby, could “lead people to misunderstand the potential trade-off between our fiscal situation and lost economic development” – i.e., the jobs and economic benefits of new wind projects, especially for farmers receiving lease payments.

Regarding new wind development under such a tax, Godby predicts “a significant impact,” possibly even the cancellation of projects.

“We just don’t know [the true impact],” he clarifies, “but there is real risk that such an increase could both reduce existing wind production and stop any new development.”

“Both would have significant impacts on the economic activity in the state and could kill a much needed avenue of future economic diversification,” he stresses.

Noting the competitive nature of the wind industry and the fact that Wyoming has “the only wind tax in the country that is assessed on top of all other taxes,” Godby warns that “we have to be careful.”

Current wind contracts are estimated at $16/MWh-$20/MWh, according to Godby, and the current $1/MWh tax does not “seem to affect the state’s competitive position too much.” Quintuple that tax, though, and you’re going to “gobble up from 25 percent to over 30 percent of the potential gross revenues any developer could get from a new wind project,” he says.

“The wind industry in Wyoming does not operate on margins nearly fat enough to afford such a tax increase,” Godby explains, “and I fear if we adopted such a tax, it would just make Wyoming an uncompetitive place to develop wind.”

Although it’s unclear if the tax proposal will go all the way, it should be noted that Steve Harshman, speaker of the Wyoming House, has previously spoken out as a proponent of Wyoming’s wind industry – at least, the jobs it is creating. In response to a 2017 CBS News report regarding the proliferation of Wyoming wind jobs created by Chinese companies, the Republican congressman said, “There is so much integration in economies around the world. I think it’s all about free markets, and I think we all support that.”

Godby, unsure how the bill will fare this time around, cites a number of possible reasons the proposal keeps popping up in the first place. It “depends on who you talk to,” he says, but the impetus for the state’s tax proposal – beyond the fiscal deficit reasoning – includes a “misplaced fear” that wind jobs are displacing coal jobs; partisan politics; or wind turbines’ effect on “viewscapes and cultural identity.”

“The open land is synonymous with western culture,” he explains, “and the wind turbines and their potential vast use of land threaten that and impose a real cultural cost on people. The benefits, in return, are perceived to be small, as the power from turbines in Wyoming is exported.

“In that case, taxes make sense – they are a way of compensating for the costs Wyoming endures,” he says.

Godby brings up another possible motivation for the proposal: a way for people who regard wind subsidies as unfair to “address that philosophical wrong.”

“The bottom line,” he adds, “is that there a lot of reasons people keep bringing these taxes up.” Godby makes a point of noting, however, that he can understand why people can take issue with wind development.

They see an increased tax, he believes, as “a compensation mechanism” or as “a way of either stopping or slowing development.”

Importantly, Godby says he is unsure lawmakers truly understand just how competitive the wind industry can be.

“They also often believe that the wind resource in Wyoming is second to none and that turbines will come here regardless of the tax rates, so we might as well maximize our return,” he says.

However, with nearby areas ripe for development, with wind resources that “could be comparable to Wyoming’s, or more profitable, especially if such a tax is instituted,” developers could decide to head to states with friendlier policies.

In fact, he quips, Wyoming’s increased tax would end up being “a great gift” to nearby states such as Montana, New Mexico or Colorado, which could welcome the developers with open arms – and the jobs and economic benefits of their projects.

Even if the legislation is defeated once more, Godby doesn’t expect the proposal to go away any time soon, considering “the pockets of very strong wind opposition” in the state and the fact that the bill keeps on coming back.

As he has previously recommended in testimony to the state, Godby suggests that if Wyoming wants to implement new wind tax rates, it should do so “very gradually” to avoid devastating impacts to the state’s industry, as Godby and his colleagues also laid out in a 2016 report, “An assessment of Wyoming’s competitiveness to attract new wind development, and the potential impacts such development may bring to the state.”

A gradual increase, instead, could head off “the possibility of major disruption to potential wind development – and what could be a very important industry and source of economic activity in Wyoming,” he says.