Improving Tax Incentives for Wind Energy Production: The Case for a Refundable Production Tax Credit

66 Pages Posted: 30 Aug 2015 Last revised: 8 Mar 2017

See all articles by Michelle D. Layser

Michelle D. Layser

University of Illinois College of Law

Date Written: August 19, 2015


Tax-based subsidies for wind energy production are at a crossroad: the draft tax package released by the Senate Finance Committee in July 2015 would reinstate by the end of this year the production tax credit that was allowed to sunset at the end of 2014. Though the wind energy industry and proponents of clean energy and fossil fuel alternatives eagerly await the renewal of the subsidy, it would be a mistake to extend the production tax credit in its current form. Under current law, features of the production tax credit make the subsidy unavailable to many wind energy developers absent costly, complex tax equity investment transactions. This problem could be solved by making the production tax credit refundable.

This article departs from much of the existing literature, which would amend the production tax credit with the intent to expand the supply of tax equity investment financing, by demonstrating how the transactions misdirect part of the value of the subsidy to passive, third-party investors like Google, MetLife, JP Morgan, and their teams of advisors. This article argues that a production tax credit that relies on tax equity investment financing is less effective than it could be and reflects poor tax policy because the subsidy is poorly targeted to reach its intended recipient. Drawing from theory about refundable tax credits, this article further argues that a refundable production tax credit would not only be more effective, simple and equitable, but also would be more efficient than the current nonrefundable version. For these reasons the article concludes that the production tax credit should be amended to make the credit refundable.

Keywords: tax, energy law, environmental law, wind energy

Suggested Citation

Layser, Michelle D., Improving Tax Incentives for Wind Energy Production: The Case for a Refundable Production Tax Credit (August 19, 2015). 81 Mo. L. Rev. 453 (2016), Available at SSRN:

Michelle D. Layser (Contact Author)

University of Illinois College of Law ( email )

504 E. Pennsylvania Avenue
Champaign, IL 61820
United States

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