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What’s Worse Than Energy Taxes? Renewable Electricity Standards



Conn Carroll
The Morning Bell, The Heritage Foundation
May 11, 2010

On March 15th, appearing with labor and environmental leaders, Los Angeles Mayor Antonio Villaraigosa unveiled a new alternative energy plan that he said would ensure the Los Angeles Department of Water and Power would meet his goal of securing 20% of its energy from renewable sources such as wind and solar by December 31st. At the time, he claimed it would create 16,000 jobs and only raise consumer electric bills between 8.8% and 28.4%. But less than two weeks later those energy rate hike estimates had skyrocketed with the DWP saying it needed to raise rates by 37% in order to meet the renewable energy standards. Los Angeles’ already shrinking business community revolted and by April Mayor Villaraigosa’s plan had been soundly defeated.

What played out in Los Angeles is now about to play out in Washington. Sen. Jeff Bingaman (D-NM) has been marshaling his American Clean Energy and Security Act (ACELA) through committee and is set to move it to the floor soon. The heart of Bingaman’s plan is essentially the same as Mayor Villaraigosa’s: a renewable electricity standard (RES) that mandates sellers of electricity to produce a growing percentage of their power from renewable energy sources every two years. And like Mayor Villaraigosa’s plan, Sen. Bingaman’s renewable energy standards would also mean higher electricity prices for all Americans.

The inconvenient truth is this: nearly half of America’s electricity is generated from coal. Natural gas and nuclear energy add about 20 percent each. Most of the rest is provided by renewable sources, primarily hydroelectric energy at 6 percent. Non-hydro renewables like wind, solar energy and biomass total only 3 percent. And this is after decades of existing generous renewable subsidies. If electricity created by wind and other renewables were cost competitive, consumers would use more of it without a federal law to force consumption. But renewable energy is not cost competitive, hence the need for government coercion to force the American people to buy it.

But just how much more will we have to pay for energy under renewable electricity standards? There are federal studies of the costs of an RES that conclude that it would add no more than a few percent to electric rates. But these studies do not take the full cost of wind and other renewables into account, including the additional resources needed to overcome the intermittent and unreliable nature of wind energy or the construction of new transmission lines connecting rural wind generation to urban power needs.

Taking all these additional factors into account, the Heritage Foundation’s Center for Data Analysis has crunched the numbers and found that at an RES would: 1) Raise electricity prices by 36 percent for households and 60 percent for industry; 2) Cut national income (GDP) by $5.2 trillion between 2012 and 2035; 3) Cut national income by $2,400 per year for a family of four; 4) Reduce employment by more than 1,000,000 jobs; and 5) Add more than $10,000 to a family of four’s share of the national debt by 2035.

The CDA report concludes: “Electric power is one of the most critical inputs to a modern economy. Thus, it is no surprise that forcing the cost of electricity to rise dampens economic activity. The cost increase for electricity can be viewed as a particularly damaging energy tax, because a renewable mandate, unlike the case of a normal tax, provides no revenue to at least partially offset the higher cost. By way of comparison, the highway use tax on gasoline raises the price of gasoline, but it also generates revenues for building and maintaining roads and bridges. On the other hand, a renewable energy standard raises costs in the form of less efficient production, which provides no economic benefit.”

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