The Inflation Reduction Act of 2022 (IRA), President Biden’s signature climate bill, passed solely by Democrats, contains lucrative, essentially uncapped subsidies for wind and solar-generated power. Under current law, the tax credits phase out over four years, starting in either 2032 or when the U.S. power sector’s greenhouse gas emissions fall to a quarter of their 2022 levels — whichever comes later. An essentially uncapped phase-out defies the original purpose of tax credits, which is to spur the advent of young industries. The wind and solar power industries are decades old and should be able to advance without continued support from lawmakers and American taxpayers. These industries supplied 15.6% of the electricity generated by central generating stations in 2024, surpassing coal generation for the first time, which accounted for 15.2% of that power in the same year. As such, solar and wind tax credits should be phased out much earlier, as they are in the House version of the “One Big Beautiful Bill.”
Wind Energy Tax Credits
Wind energy is far from a modern innovation — it has been utilized for hundreds of years. The United States made an early push to establish a wind power sector in the 1970s, starting in places like California’s Altamont Pass. However, those early efforts eventually lost momentum. Today’s wind turbines are significantly more advanced than those of the past, thanks to state requirements and both federal and state-level incentives. These modern turbines are built with better materials, operate more efficiently, and come at a lower cost. Nonetheless, wind energy still faces a major limitation: it’s intermittent. When the wind isn’t blowing, alternative energy sources must step in — either through costly battery storage systems or conventional power plants fueled by coal, natural gas, or nuclear energy. These backup systems must be available nearly all the time and could operate as primary sources on their own, running up to 85% of the time or more.
Roughly half of U.S. states have laws mandating that a specific portion of their electricity come from renewable sources, such as wind and solar. On top of that, the federal government has provided substantial financial support to these industries. The U.S. Energy Information Administration (EIA) reported that federal subsidies for wind power increased tenfold between fiscal years 2007 and 2010. During that same period, wind power production jumped by 175%, growing from just 0.8% of the national electricity mix in 2007 to 2.3% in 2010. However, achieving that growth required a significant investment — $5 billion in subsidies in fiscal year 2010 alone. That year, taxpayers spent $56 in subsidies for every megawatt hour of wind energy produced, compared to just 64 cents for electricity from coal or natural gas. According to the EIA, 97% of those wind subsidies came from the American Recovery and Reinvestment Act of 2009.
From FY 2010 to FY 2013, wind subsidies climbed another 8%, and wind’s share of electricity generation rose to 4.1%. By FY 2016, wind energy received $1.27 billion in subsidies (adjusted to 2016 dollars), with most of that aid delivered through tax incentives. Even so, wind generated only 5.6% of the nation’s electricity, while coal and natural gas together provided 64%. The EIA’s most recent report shows that federal subsidies for wind energy more than quadrupled between FY 2016 and FY 2022, rising from $846 million to $3.59 billion (both figures in 2022 dollars).
Wind power comes with notable limitations. As previously noted, it only generates electricity when wind conditions are favorable, regardless of the current demand for electricity. This variability means wind has limited capacity value — it can’t be called upon reliably like coal or natural gas plants, which can be dispatched on demand. Despite this, wind energy often receives preferential grid access when available. This helps utilities meet state renewable mandates and allows wind operators to claim the federal Production Tax Credit (PTC), which compensates them simply for generating power, regardless of whether it’s needed at the time.
The PTC was first introduced in 1992 under the Energy Policy Act, offering a tax credit of 2.3 cents per kilowatt-hour of electricity produced from wind for the first ten years of a facility’s operation. Though it was originally designed as a temporary support to help the industry grow, the credit has now been in place for over three decades. Since 1999, it has been extended more than a dozen times. According to estimates from the U.S. Treasury, the current form of the PTC will cost taxpayers $289.63 billion between fiscal years 2025 and 2034, making it the most costly energy subsidy currently in the tax code.
Although wind advocates claim that the technology is now competitive with conventional power sources, the industry continues to push for continued support through the IRA’s credits. However, these incentives have unintended consequences. One major issue is their impact on electricity markets. The PTC can cause wholesale electricity prices to fall below zero, forcing other generators to accept negative prices. Because taxpayers pay wind operators, they can still turn a profit even if they must pay the grid to accept their electricity. Negative pricing means that power producers are actually paying to stay online.
Negative wholesale prices typically signal oversupply, warning the market that generation exceeds demand and urging producers to scale back. But wind facilities are insulated from these signals because of government subsidies that reward them for producing energy no matter what. In effect, the federal government is tipping the scales, incentivizing electricity production whether it’s needed or not, distorting market dynamics and undermining more flexible and responsive power sources.
The PTC also distorts the true cost of electricity generation by shifting a significant portion of the financial burden onto taxpayers. Because wind is an intermittent resource — it doesn’t generate power continuously—it needs to be backed up by more reliable sources, typically coal or natural gas plants that can be ramped up when electricity demand rises and wind output falls. This redundancy means consumers effectively pay twice: once for the wind infrastructure and again for the conventional backup power that ensures the lights stay on when wind conditions aren’t favorable.
Adding to the challenge, wind output is often highest during times of low electricity demand, such as late at night or in the early morning hours. Yet, cost estimates for wind energy often exclude the expense of maintaining backup power sources or deploying large-scale battery systems — another costly solution made necessary by the inconsistent nature of wind and solar energy. Utility-scale batteries, while seen as a potential fix, are extremely expensive and wouldn’t be required if not for policies that subsidize and mandate intermittent renewables.
Wind power also faces other significant drawbacks beyond cost and reliability. Wind turbines generate noise, require vast areas of land, and pose a serious threat to wildlife, particularly birds of prey and bats that are killed by spinning blades. Moreover, the best wind resources are usually located in remote regions, far from population centers. Transmitting power from these distant sites to where it’s actually needed requires building out costly new infrastructure — transmission lines that ultimately show up on consumers’ utility bills.
The lifespan of a wind turbine is typically between 20 and 25 years, considerably shorter than fossil fuel or nuclear power plants, which can operate efficiently for 40 to 50 years. Decommissioning wind turbines presents its own environmental challenge, especially the disposal of their massive blades. These components are difficult to recycle and often end up in landfills, creating a growing waste management issue.
Solar Investment Tax Credit
The Investment Tax Credit (ITC) for solar energy provides a 30% tax credit on the investment in a qualifying solar facility, meaning that taxpayers literally purchase 30% of the capital cost of every solar array on roofs or in industrial solar farms. Because about 80% of U.S. solar panels originate overseas, U.S. taxpayers are contributing 24% of the cost of manufacturing solar panels overseas. The Solar ITC, initially introduced in 1978, was significantly enhanced in 2005 with an expiration date of 2007, which was later extended to 2016, accompanied by a clear phase-down path. It underwent 15 extensions, culminating in the IRA.
The EIA found that solar subsidies were $3.036 billion in FY 2016,doubling to $7.522 billion in fiscal year 2022, representing 33% of total renewable subsidies. The EIA found that federal subsidies and incentives to support renewable energy in FY 2022 totaled $15.6 billion — almost five times higher than those for fossil energy, which totaled $3.2 billion in subsidies. The subsidies in the EIA’s reports do not include state and local subsidies, mandates, or incentives that, in many cases, are quite substantial, especially for renewable energy sources. The EIA also did not include the massive subsidies authorized in the IRA.
In 2024, the Treasury estimated that the ITC would cost taxpayers $24.2 billion in FY 2024 and $131.44 billion between FY 2025 and FY 2034. As mentioned above, the IRA sunsets the ITC only after the U.S. electricity sector achieves a 75% reduction in greenhouse gas emissions from the 2022 baseline, which is unlikely to be achievable. Therefore, there is essentially no cap on the credits awarded for solar energy through the IRA. Solar energy has not benefited the U.S. power system because it has led to increased reliability problems and added costs, causing issues for the electric grid and threatening blackouts, as recently occurred in Spain when two large solar farms went offline.
Oil and Gas Tax Deductions
When discussions arise about whether to extend tax credits for wind and solar energy, environmentalists and some lawmakers often respond by citing “taxpayer subsidies to big oil companies” as justification. However, what is commonly referred to as subsidies for the oil industry are actually tax deductions — not credits — and they primarily benefit small, independent oil and natural gas producers, not the large, multinational firms typically labeled as “big oil.”
One of these deductions is available to all domestic manufacturers, not just those in the fossil fuel sector. The remaining deductions are standard business write-offs, similar to tax breaks for research and development that apply across various industries.
Two specific deductions that mainly support small producers are the percentage depletion allowance and the ability to expense intangible drilling costs. The percentage depletion allowance permits small oil and gas operators to deduct a portion of the value of extracted resources as the well is depleted. While this may sound complex, it functions similarly to asset depreciation in other industries, comparable to how a manufacturing facility’s value is gradually written down over time. This provision dates back to 1926 and was intended to reflect the diminishing value of a finite resource. Importantly, it has not applied to major oil companies since it was removed for them in 1975. This tax deduction was estimated to save independent oil and gas producers about $0.7 billion in fiscal year 2024.
Independent oil producers can also deduct certain expenses related to drilling and developing wells as part of their regular business operations. Specifically, the tax code allows these smaller producers to fully write off what’s known as intangible drilling costs — such as labor, site preparation, and survey work — each year. This provision is designed to incentivize continued exploration of new oil resources. Larger, integrated oil companies are treated differently under the tax code. While they are still allowed to deduct intangible drilling costs, they can only expense about one-third immediately and are required to spread the remaining deductions evenly over five years. This approach mirrors how other industries treat similar investments, like research and development, by allowing businesses to recover costs over time. This tax deduction was estimated to save independent oil and gas producers about $0.6 billion in fiscal year 2024.
Another tax deduction is the Domestic Manufacturing tax deduction, which allows all industries and businesses (not just oil companies) to deduct a certain percentage of their profits — it is 6% for the oil and gas industry and 9% for all other industries (software developers, video game developers, the motion picture industry, and green energy producers, among others).
Comparison of Major Tax Incentives
According to the Joint Committee on Taxation, the production tax credit for wind was estimated to cost taxpayers $3.4 billion in FY 2024, the investment tax credit for solar was estimated to cost $15.9 billion, and the three tax deductions for oil and gas listed below combined were estimated to cost $1.3 billion. According to these numbers, the wind and solar tax credits outweighed the tax deductions of oil and gas companies by a factor of 15 in FY 2024. Furthermore, this comparison does not include the tax deductions that the wind and solar industries receive for depreciation and manufacturing, nor the benefits they derive from state mandates and subsidies.
When compared to the relative amounts of energy produced by each source, taxpayers are receiving little benefit from wind and solar energy, and a significant benefit from oil and natural gas. Almost all of our transportation is fueled by oil, and natural gas is the largest source for both heating homes and making the electricity that cools our homes, fuels our factories, schools, and hospitals, making modern life possible.
Conclusion
The House has passed a bill that essentially phases out the IRA tax credits for wind and solar power over a short period. The Senate is now debating the issue. The wind and solar industries want to keep the tax credits that were in the Democrat-passed IRA. The small tax benefits available to oil and gas producers pale in comparison to the vast sums of taxpayer money being handed to wind and solar generators. While the wind and solar industries receive lucrative subsidies from the IRA, the oil and gas industry receives tax deductions estimated to total approximately 6% of what wind and solar would receive. Yet, these energy forms provide very different benefits to Americans, including revenue to the government, employment opportunities, and energy contributions. Even after investing billions, the U.S. economy obtains less than 3% of its primary energy from wind and solar, compared to 74% from natural gas and oil. However you slice it, the wind and solar tax credits are a bad deal for taxpayers and consumers, as they have only escalated the cost of electricity, which increased for residential homeowners by 25% during the Biden administration.
*This article was adapted from content originally published by the Institute for Energy Research.
