Lame Policy For Lame Duck

Posted on Wed 09/22/2010 by


By David Kreutzer, Ph.D.

It seems that many in Washington had their books upside down when they studied economics. In the midst of a serious recession, they are proposing to jack up income tax rates, which would add hundreds of thousands to the already sky-high unemployment rolls. Now we hear that the Senate is thinking about forcing high-cost electricity on already struggling businesses and households, a policy that could put hundreds of thousands more out of work.

Senator Harry Reid (D–NV) recently indicated that legislation mandating a renewable electricity standard (RES) is a possibility for the lame duck session. The proposal was cheered on by a collection of special interests—many of whom are on the receiving end of the billions in subsidies already paid for renewable energy.

An RES sounds appealing on the surface, since it employs fuels that could be free (for instance, wind and sunshine). Though wind is free when it blows and sun is free when it shines, electricity from these sources is very expensive and unreliable. And renewable electricity does virtually nothing to reduce our dependence on foreign oil, because less than 1 percent of American electricity is generated from petroleum. But an RES would reduce employment and income because it raises energy prices.

The Obama Administration’s Energy Information Administration (EIA) recently projected the costs of electricity from various sources for the year 2016. They estimate that wind and solar power will be as much as four times as expensive as electricity generated by coal or natural gas—fuels we have in considerable abundance in the U.S.

However, even these large cost increases make no adjustment for the remoteness and fickleness of wind and solar power. Except in relatively rare cases (pumped storage being one), it is not possible to store the energy generated by any source on the power grid. So any change in demand must be matched by a change in supply, or voltage will stray outside its narrow targets and lead to brownouts, surges, or power outages. This means that expensive sources of special backup power must always be ready. And the greater the quantity of erratic wind and solar power that is forced on the system, the more often this expensive backup power must be used.

Further, the best wind and solar resources are far from the nation’s population and energy-demand centers. Building the necessary network of transmission lines would cost billions of dollars more.

When the EIA estimates are adjusted for these backup and transmission costs, the higher costs of wind and solar power get even worse. For instance, if an average family of four could get all of its electricity at a coal-based price, the annual cost would be $2,264 per year. If, instead it were to get all its electricity at the price needed to cover the cost of wind (onshore), it would jump to $4,075 per year. The costs are even worse for offshore wind, and the price needed to pay for electricity from solar cells would push the family’s bill to $8,614 per year.

Because RES proposals typically start with small percentages, the impacts on electric bills are initially diluted by averaging a small amount of the costly renewable energy with a large amount of the cheaper conventional energy. However, as the mandated renewable fraction grows, so does its economic impact.

Analysis of a generic RES that starts at 3 percent in 2012 and rises by 1.5 percent per year (reaching 15 percent by 2020) would kill a million jobs and cut a trillion dollars from national income by the end of the decade. Proposing such policies can only dampen the investor confidence and make it that much harder to grow the economy out of its current downturn.

The great irony here is that the U.S. is gearing up for even greater subsidies to the renewable energy industry just as the supposed leaders in Europe have woken up to the high costs and are cutting their subsidies for renewables. See here, here, and here.

The adage says wise people learn from the mistakes of others. So we can choose to be the wise person, or we can choose to be the object lesson.

David Kreutzer, Ph.D. writes articles for The Heritage Foundation and is the Senior Policy Analyst in Energy Economics and Climate Change, Center for Data Analysis.

Read more informative articles at Heritage – The Foundry

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