Renewable Energy Mandates: A costly burden for the poor

Replacing fossil fuels with renewable energy to reduce carbon dioxide (CO2) emissions sounds like a good idea. It is certainly popular with government officials; twenty nine states, the District of Columbia, and Puerto Rico mandate use of renewable sources to generate electricity.

But with the high cost of these mandates and their impact on millions of low-income families struggling to make ends meet, state governments need to rethink their policy.

A recent study by the Manhattan Institute noted that these mandates have already increased electricity rates substantially in many states and will continue to do so. The mandates are called renewable portfolio standards (RPS) and require utilities to generate a specified minimum amount of electricity—ranging from 10 percent in Michigan to 40 in Hawaii—from wind, solar, biomass, hydroelectric, and geothermal sources. California’s standard requires that one-third of electricity in that state is generated from renewable sources by 2020.

The mandates have already had an impact in the states that have passed them. States with an RPS have seen bigger rate increases. Coal-dependent RPS states have seen residential rates increase by an average of 54.2 percent between 2001 and 2010, more than twice the increase in coal-dependent states without one. In Ontario, which is further along in this than most US states, the government has projected that electricity rates will increase by 46 percent over the next five years. The Manhattan Institute estimates that obtaining 20 percent of electricity from wind energy would lead to a 48 percent increase over the current price in coal-dependent regions of the US.

Besides the rising cost of electricity to consumers that will result from renewable energy mandates, the federal government is losing billions on subsidies and loan guarantees to companies, like Solyndra, that have gone or will likely soon go bankrupt. State and local governments, too, face expenses and loss of tax revenue from efforts to favor renewable energy. With unsustainable levels of debt, governments cannot afford to continue these policies.

Renewable energy costs considerably more than conventional. On-shore wind power, which is the least expensive renewable source widely available, costs more than natural gas even in the best locations, and is expected to cost an average of about fifty percent more by 2016. Instead of using more expensive renewable sources, gradually increasing the use of natural gas and using less coal can reduce the amount of CO2 generated per megawatt hour while lowering generating costs.

The biggest alleged advantage of renewable energy sources is that they will reduce CO2 emissions, but the case for bearing high costs to reduce CO2 emissions is weak. Besides the fact that it is not clear whether or how much increased CO2 emissions have raised global temperatures, or will in the future, the relatively modest reduction that can be achieved by renewable energy mandates will have little impact on atmospheric levels of CO2 and, more important, will reduce future temperatures by only an inconsequential few hundredths of a degree.

It’s time for voters to wake up to the underhandedness of their elected officials’ pursuing CO2 reductions indirectly in spite of public opposition, rather than openly debating whether that is a desirable goal. Cap and trade failed in Congress; RPS is just a sneaky way of slipping it past the public.

If the benefits of reducing CO2 are large enough, the costs of doing so should be openly discussed. Good stewardship requires not only finding a cost-effective way to achieve desirable goals, but also choosing a method that limits the size of any resulting increase in electricity rates for those who already have difficulty paying their utility bills. They are the ones who, as pointed out in The Cost of Good Intentions: The Ethics and Economics of the War on Conventional Energy, a major study by The Cornwall Alliance for the Stewardship of Creation, will be most hurt.

By imposing CO2 reductions on electric utilities, the government is effectively imposing a regressive tax in the form of higher utility rates. Low-income people spend a much higher share of their income on electricity than do high-income people. With the economy growing slowly and a recession looming in the not too distant future, now is not the time to impose higher energy costs on low income Americans.