CLOSUP Student Working Paper Series Number 16 December 2016
Blown Away: The Increasing Importance of Wind Energy in Michigan Sean Smalley, University of Michigan
This paper is available online at http://closup.umich.edu Papers in the CLOSUP Student Working Paper Series are written by students at the University of Michigan. This paper was submitted as part of the Fall 2016 course Public Policy 475: Michigan Politics and Policy, made possible through funding provided by the University of Michigan Third Century Initiative. Any opinions, findings, conclusions, or recommendations expressed in this material are those of the author(s) and do not necessarily reflect the view of the Center for Local, State, and Urban Policy or any sponsoring agency
Center for Local, State, and Urban Policy Gerald R. Ford School of Public Policy University of Michigan
Sean Smalley smalleys@umich.edu PubPol 475/POLSCI 496 Professor Horner December 12, 2016 Blown Away: The Increasing Importance of Wind Energy in Michigan I. Justifications for a shift to renewable energy The future of the environment is a controversial topic in 21st century America. Two polarities exist on the subject of the environment. Typically conservatives reject climate change and doubt any human causation, claiming it to be a mythical phenomenon. On the flipside, scientists and advocacy groups alike are pressing for action, as they consider global warming a legitimate threat to human existence. In exploring the subgroup that is opting to protect the environment, it is apparent that a multitude of routes are available to counteract climate change. Particularly in the state of Michigan, no conservation effort is as prominent as the initiative to create a system of clean, renewable energy.
The contemporary push for renewable energy in Michigan started in 2008
through Public Act 295, the Clean, Renewable and Efficient Energy Act. The act established requirements for renewable and efficient energy across the state, specifically enacting a 10% by 2015 electric renewable portfolio standard (RPS). This essentially required that 10% of electricity generated by Michigan utilities was generated from renewable sources by 2015. The initial renewable portfolio standard was especially significant for Michigan’s economy. The renewable portfolio standard stimulated the energy market by creating demand for clean, efficient energy. In increasing economic competition against conventional energy sources,
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historical providers of fossil fuels began competing to enter the alternative energy market. The competition increased because of taxes, which incentivized the development of renewable energy over other sources of generating electricity.
Several sources of renewable energy currently exist in Michigan. The Clean,
Renewable and Efficient Energy Act has certainly helped the emergence of wind, hydro and biomass energy among other platforms. In fact, the Detroit Free Press reported a breakdown of the current sources of renewable energy, indicating that 15% is delivered from hydropower and 13% from biomass, which includes wood burning (2016). However, no source is as substantial in Michigan as wind energy. Today, 61% of renewable energy in Michigan is obtained through wind energy. Wind energy is clearly the desired source of renewable energy in Michigan moving forward. Given Michigan’s abundant resource of wind, the state is poised for future investments in development. Additionally, Michigan’s vast countryside offers several areas for the expansion of wind energy projects.
The issue remains as to whether Michigan is cohesively interested in
expanding the clean, efficient wind energy initiative in the future. Although Michigan has available geographic regions to install wind turbines and the support of local officials in these jurisdictions, the reality is the continued development has halted. Michigan utilities Consumers Energy and DTE maintain a leisurely approach towards wind energy as the pressures of performance stemming from the Clean, Renewable and Efficient Energy Act have expired. Furthermore, local landowning farmers across Michigan are divided in their opinions on wind power, presenting a
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difficult situation for government officials to create a comprehensive wind energy policy.
This paper aims to explore the recent success of wind energy in Michigan,
including its immediate positive impact on the environment and the resulting economic benefits to local jurisdictions. I will summarize past literature on the debate among various actors in Michigan to allude to the direction of wind energy policy in Michigan. Ultimately, through the discussion of wavering opinions on the matter emerges my steadfast recommendation to invest in wind power development – a sustainable and economically sound approach to energy in Michigan. II. Incentives for wind as the preferred renewable source
Various justifications exist for and against the development of wind energy in
Michigan. In exploring the landowners who support wind energy, it is obvious that major financial benefits stem from this sustainable initiative. First and foremost, landowners – many of whom are farmers – are compensated a dollar amount per turbine that exceeds the dollar amount produced by an agricultural harvest on comparable acreage (Rynne et al. 2011). Landowners also receive a royalty for the energy generated by wind turbines. Together, these additional incomes help protect landowning farmers, who usually compete against weather and other elements, from varying annual crop yields (Rynne et al. 2011). This is a model method of incentivizing the preservation of Michigan’s environment. In addition, the leasing of land for wind turbines solves two problems in a single, swift action. While the primary objective behind turbines is to generate electricity in a clean and efficient
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manner, the zoning of windfarms prohibit additional construction on the allotted property. Although windfarms are spread across a large geographic plot of land, the actual footprint of turbines occupies a small portion of the land. Thus, windfarms ultimately protect rural Michigan from succumbing to urban sprawl (Mills 2012).
Beyond landowners, wind energy also has far-reaching effects on rural
economies in Michigan; specifically, the manufacturing and installation of wind turbines creates a multitude of jobs and is an attractive economic component in renewable energy policy (Rabe 2006). Although jobs are temporary in certain phases of wind development – e.g., installation – the reality is rural communities historically offer struggling levels of economic growth. Thus, all growth – even in the environmental sector – is gratefully accepted.
Another financial boon to windfarming is the local property tax system. Wind
developers are required to pay a property tax to the local jurisdiction, which in turn helps improve public services in their jurisdiction. Kahn (2013) indicates in his study that major wind energy development in West Texas increased the quality of public schools in the jurisdiction. Rural communities – often in need of aid because of a flailing economy – welcome the benefits that stem from property taxes on windfarm development. The revenue from property taxes help local officials sustain quality public services to its people that could otherwise deteriorate or become neglected entirely. III. Disincentives to developing wind energy
The failed 2012 ballot initiative that called for a 25% renewable energy
standard by 2025 serves as a point of reference in determining the direction of
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future wind energy policy. Despite the multitude of positive aspects stemming from wind energy, a selection of landowners remains in opposition. Mainly, their gripe is reflected in the diminishing of property values as a result of wind turbines. Landowners and residents alike complain about the aesthetics behind wind energy. In the fall of 2013, the Michigan Public Policy Survey conducted by the Center for Local, State and Urban policy highlighted a breakdown of the mounting dissent towards energy by geographical region. 24% of residents from Michigan’s “Thumb” area, a region in Central Michigan located east of Tri-Cities, polled in opposition towards wind energy. Several factors weigh into this sentiment. People emotionally attached to rural landscapes are resistant to the development of wind energy in their regions. Park and colleagues (2011) suggest this sentiment in their research, stating, “Opposition to such changes based on concerns about loss of traditional landscape qualities, even where there is broad social agreement that the changes are appropriate and desirable, may impede the pursuit of sustainable development” (200). From Park’s research, it is inferred that wind turbines devalue property for aficionados of the rural scene. Groth and Vogt (2014) offer other attributes of respondents to their survey who opposed wind energy, citing “increase in electric rates” and “uncertainty/unclarity” as common concerns. In regard to increasing electric rates, respondents are particularly disheartened that they are not experiencing a dramatic decrease in electric costs. They expected that the energy generated by wind turbines would affect their energy bills (Groth and Vogt 2014). Thus, residents in jurisdictions committed to developing wind power are dissatisfied that windfarm construction is not effectively lowering their costs.
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Respondents are also distressed over the lack of clarity surrounding wind turbine development. The uncertainty is alarming for residents, as many are unsure about governmental procedure for removing inefficient or rotting turbines. The intense apprehension towards further wind power projects contributes to the looming absence of a comprehensive wind energy policy in Michigan.
Furthermore, Michigan utilities remain in staunch opposition to increasing
the renewable portfolio standard. Although wind power projects are a fraction of the cost of coal plants to construct, DTE has major stakes in the coal industry, investing specifically in the production and transportation aspects of the industry. A subsidiary of DTE, DTE Coal Services, is a main marketer and transporter of coal in North America. Thus, DTE was potentially at risk to lose revenue from the passing of the 2012 ballot initiatives due to the ensuing decrease in coal demand. Considering the stakes of actors involved in creating policy, it is extremely difficult to coax all involved parties to agree to future proposals. IV. Creating wind energy policy
Today, the challenges in forming a comprehensive policy start in designating
authority. Conversation specifically exists over what level of government deserves renewable energy policymaking power, as officials debate whether it is a state or local issue. The Michigan Public Policy Survey indicates that the majority of local officials believe regulatory power belongs to the local government. In 68% of surveyed jurisdictions, local officials responded that local governments deserve “a great deal of authority in regulating the location, height, and setbacks of wind turbines� (2013). Currently, local officials in the state of Michigan maintain
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authority over all wind energy policymaking. An argument exists for the continuation of this designation of power. Whereas Lansing oversees an entire state, local officials are able to concentrate on a single jurisdiction. Thus, local governments – given the familiarity of their jurisdiction – are sensitive to their people and specifically cater to its needs. State regulations are often wider in scope. Wind energy development in Michigan benefits from regulation by jurisdiction to account for situational uniqueness.
Local officials use several tactics to encourage the development of wind
energy projects in their jurisdictions. A popular method used by local jurisdictions is instituting a local ordinance or zoning code. The Michigan Public Policy Survey indicates that 33% of local jurisdictions where wind energy is a relevant issue employ ordinances or zoning codes (2013). Figure 1
Local ordinances in jurisdictions discussing wind energy Have Adopted 15% 33%
Likely to Adopt Neither Adopted Nor Likely to Adopt
33% 19%
Don't Know
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The purpose of ordinances and codes is to regulate the placement and
construction of turbines. In regulating the placement and construction of turbines, the ordinances are responsible for managing the potential impact on the locality. This includes addressing noise limits at property lines and determining setback distances. Setback distances are an attempt to accommodate residents in a jurisdiction containing windfarms, providing a buffer for visual and noise concerns. Local ordinances and zoning codes also regulate decommissioning for turbines that are deemed dysfunctional.
Another method local jurisdictions use to encourage wind development is
the offering of financial incentives in the form of tax credits. Figure 2, below, illustrates the impact of tax incentives in jurisdictions discussing wind development. Figure 2
Tax incentives in jurisdictions discussing wind energy 2% 5% 16%
Have Adopted Likely to Adopt Neither Adopted Nor Likely to Adopt Don't Know
77%
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Only 2% of jurisdictions where wind energy is a topic of discussion offer tax
incentives that attempt to “promote, restrict or simply regulate wind turbines,” according to the Michigan Public Policy Survey (2013). Meanwhile, a whopping 77% of local officials responded that they “neither adopted nor likely to adopt” (2013). From this data, it is plausible to consider the revamping of Michigan’s tax incentive policy to create appeal for investors as an avenue to further encourage development of wind energy. V. Policy recommendation
Nevertheless, the state’s current dependence on fossil fuels is unsustainable
and dangerous for the protection of the environment. Time is of the essence to consider the effects of climate change when establishing sound energy policy. The investment in clean efficient energy is critical to the future of Michigan. Specifically, I agree with the policies of the various Michigan environmental advocacy groups and recommend that the state institute a benchmark for an updated renewable portfolio standard. I believe that 20% is not an unquestionable percentage to achieve by 2025, with wind energy accounting for a major chunk of production. As note, Michigan has the terrestrial resources to achieve this – and local officials are certainly interested in pushing development. In order to achieve this figure, I am recommending that policymaking authority remains in control of local officials. Local officials understand their jurisdiction and its people – the state government in Lansing has a weaker connection. Thus, I propose that policymaking ability on wind energy policy remains at the local level to ensure that decisions are made situationally by jurisdiction and in the interest of the people.
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To truly incentivize Michigan’s utilities to develop wind power and
renewable energy overall, I think that the redesign of the current tax credit system is imperative. The tax credit system as structured is not providing enough incentive for wind power development. Currently, wind developers receive a production tax credit only from the federal government. I think the concept of a production tax credit is beneficial to creating solid wind energy policy. Production tax credits incentivize investors in wind development to constantly improve the reliability and efficiency of their turbines to ensure that energy is consistently generated. Figure 3 below illustrates the correlation between federal production tax credit expiration and annual United States wind turbine installations. Figure 3 (G. Shrimali et al., 2015)
As evident, the extension of federal production tax credits resulted in an
increase in annual wind installations. Thus, Shrimali’s study suggests that wind
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developers will flock to invest in wind energy if a production tax credit system is in position.
I propose that Michigan institutes a production tax credit at the state level.
Given the success of the federal production tax credit, I believe that a state initiative to re-incentivize the development of wind turbines is necessary. A state-level production tax credit could spark interest in investment. Although a potential risk exists in issuing tax incentives with state money merely for the process of installation, I consider this solid policy as the reliability and productivity issues that previously plagued wind turbines post installation are arguably not a concern. This is because of the improvement in technology since the initial wind turbine projects.
I also recommend that the state government in Michigan consider offering
exemptions from state sales tax. Black and colleagues (2014) discuss the state of Washington’s decision to exempt renewable energy developers from paying sales tax on machinery and equipment used to generate electricity. This clearly would incentive investors by further diminishing potential costs. Completely eliminating the sales tax, in addition to offering a proposed state production tax credit, is fiscally irresponsible and therefore unrealistic for Lansing to institute. However, I think that Michigan should contemplate creating a sales tax exemption of at a minimum 33%, to further attract potential developers. VI. Conclusion
It is certain that wind energy in Michigan presents a complex issue in
policymaking. Despite the obvious benefits to both the environment and society through the state’s institution of a 10% by 2015 renewable portfolio standard, the
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reality is that progress has since slowed. The difficulty today is that various factions within the state differ on the future of renewable energy. As aforementioned, Michigan local governments generally support the continued installation of wind turbines. In addition, Michigan environmental groups are pushing for a reintroduced renewable portfolio standard. However, no specific policies mandating this sentiment remain in effect, which has caused utilities Consumers Energy and DTE to maintain a leisure approach to renewable energy. Regional resentment from Michigan landowners and residents further complicate the issue.
Ultimately, wind energy in Michigan presents a unique opportunity to both
preserve the environment and stimulate the economy in a single, swift motion. The American Wind Energy Association indicated that wind energy provides 4.11% of Michigan’s electrical production from July 2015 to July 2016, which is equivalent to powering 437,000 homes. While combating climate change is the primary objective, the underlying attractiveness to local and state policymakers in the development of renewable energy are the economic benefits. Jobs are created for manufacturing, installation and maintenance purposes. Tax credits granted to local governments (once modified as proposed) would contribute towards improving public services. Thus, the trickle-down economic effects that materialize after investing in wind energy projects are a boon to society.
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References Black, Geoffrey, Donald Holley, David Solan, and Michael Bergloff. 2014. “Fiscal and Economic Impacts of State Incentives for Wind Energy Development in the Western United States.” Renewable and Sustainable Energy Reviews 34 (June). Elsevier: 136–44. doi:10.1016/j.rser.2014.03.015. Center for Local, State, and Urban Policy. 2013. "Support or opposition to increasing the use of wind power on land." Michigan Public Policy Survey, Fall 2013 data tables. Ann Arbor, MI: Center for Local, State, and Urban Policy. Retrieved from: http://closup.umich.edu/michigan-public-policy-survey/fall-2013data/q25h.php Groth, Theresa M., and Christine Vogt. 2014. “Residents’ Perceptions of Wind Turbines: An Analysis of Two Townships in Michigan.” Energy Policy 65 (Pa 295). Elsevier: 251–60. doi:10.1016/j.enpol.2013.10.055. Kahn, M. E. 2013. Local non-market quality of life dynamics in new wind farms communities. Energy Policy, 59, 800-807. Marcacci, Sivlia. 2012. “Ballot Initiative Would More Than Double Michigan’s Renewable Portfolio Standard.” Clean Technica. Retrieved from: https://cleantechnica.com/2012/01/15/ballot-initiative-would-more-thandouble-michigans-renewable-portfolio-standard/ Mills, S. B., Borick, C. P., Gore, C., & Rabe, B. G. 2014. Wind energy development in the Great Lakes Region: Current issues and public opinion. Mills, S. B., Horner, D., & Ivacko, T. M. 2014. Wind Power as a Community Issue in Michigan. Park, Jung Jin, and Paul Selman. 2011. “Attitudes Toward Rural Landscape Change in England.” Environment and Behavior 43 (2): 182–206. doi:10.1177/0013916509355123. Rabe. 2006. “Race to the Top: The Expanding Role of U.S. State Renewable Portfolio Standards.” Arlington, VA. Reindl, JC. 2016. “Renewable Energy to Inch Forward in Michigan.” Detroit Free Press. Retrieved from: http://www.freep.com/story/money/business/michigan/2016/10/08/rene wable-energy-michigan/91605722/ Rosegrant, Susan. 2012. “Sarah Mills: Can farmers use windmills to slow urban sprawl?” Institute for Social Research. Retrieved from:
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http://home.isr.umich.edu/sampler/sarah-mills-can-farmers-use-windmillsto-slow-urban-sprawl/
Rynne, Suzanne, Larry Flowers, Eric Lantz, and Erica Heller. 2011. Planning for Wind Energy. Chicago: American Planning Association. Shrimali, G., Lynes, M., & Indvik, J. 2015. Wind energy deployment in the US: An empirical analysis of the role of federal and state policies. Renewable and Sustainable Energy Reviews, 43, 796-806.
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