For the umpteenth day in a row rhetoric and speculation about the fiscal cliff dominated the news cycle. No one knows exactly what will happen if this unholy marriage of tax hikes and spending cuts takes effect, but a few industries are facing their own mini-cliffs and it's easier to predict the aftermath.
First, there's what might be called the windy cliff. In 1992 the government created a production tax credit to incentivize the use of clean, domestic wind power. The subsidy is a 2.2 cent credit per kilowatt hour of energy produced over ten years, amounting to about $1 million per large turbine. Since the initial credit was enacted, it has been renewed seven times and has been allowed to expire three times.
The tax credit expires for the fourth time at midnight tonight. That's too bad for fans of clean, domestic power since this tax credit works. It has been in place since 2004 and U.S. wind generating capacity increased almost six-fold between 2006 and 2011 and now accounts for about three percent of electricity generation nationwide.
Waiting until the last minute has likely already slowed the growth of wind generating capacity since wind farm developers base their plans on whether the subsidy is in effect. This is what Republicans call market uncertainty, when they're talking about tax cuts for the rich. According to the BBC, "The tax credit has proved contentious with some lawmakers criticising it as too generous. It lapsed previously in 1999, 2001 and 2003. Each time it lead to a collapse in new construction."
If the wind production credit expires, as it looks likely to do, we can expect an immediate drop off in wind power's growth. The collapse will also cost the industry 39,000 of its 80,000 jobs according to one study. And the cutoff will be swift; new turbines that are producing energy for the grid at midnight tonight receive the subsidy, those that are not yet plugged in will not, according to the Huffington Post.
The so-called "dairy cliff" is, if anything, an even more embarrassing failure of government, though it is more likely to be resolved. Here's what's going on according to Bloomberg BusinessWeek:
The most recent farm law, enacted in 2008, expired after attempts to pass a new five-year proposal failed. Without that plan, agricultural programs automatically return to rules passed in 1949, the basis of all subsequent legislation.
The effects of that transition have been delayed because of the growing seasons of different crops. Dairy production, a year-round business, is the first major commodity affected. In November, the U.S. Department of Agriculture put the price of a gallon of fresh whole milk at just under $3.54.
'Parity' Price
Under President Harry S. Truman’s farm policy, the government bought supplies of a product until its price reached “parity” with the cost immediately before World War I. Adjusted for a century of inflation, the Agriculture Department’s milk-support price today would be $39.08 per hundred pounds, more than double the dairy futures price of $18.60 at 8:34 a.m. in New York today.
BusinessWeek reports that there are currently three bills in the House of Representatives that would pull us back from the edge.
The irony here is that what Politico called the Republican's "aggressive, take-no-prisoners legislative strategy" would result in a situation resembling Soviet price controls. While the price spikes associated with the dairy cliff are unlikely to occur, Politico points out that "Republican allies — like the giant Dallas-based Dean Foods Company, which has made huge investments in the fluid milk market — would most feel the crunch. But farmers also have a lot to lose. And even as Washington would be paying out more for dairy products, school districts around the country would have to struggle to finance the milk cartons in their lunch programs."
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