The probability of cap and trade becoming law rapidly diminished as more and more people saw it for what it truly is: a national energy tax. Since 85 percent of our energy comes from carbon-emitting fossil fuels, and the goal of cap and trade is to reduce carbon dioxide, a cap-and-trade system would raise the price of energy to discourage its use. Politicians knew very well that Americans wouldn’t stand for a national energy tax—especially during an election year—so despite several murmurs, the Senate failed to move legislation forward.
Now, Congress is working on another plan that would mandate higher electricity prices. What makes it more threatening than a cap-and-trade program is that it’s garnering bipartisan support. Senators Jeff Bingaman (D–NM) and Sam Brownback (R–KS) introduced legislation that would require utilities to provide 15 percent of their electricity from government-selected renewable energy sources (primarily wind and solar) by 2021. Known as a renewable electricity standard (RES), it may sound less intimidating, but it’s nothing more than a plan that would cause electricity prices to skyrocket, leading to unnecessary hardship for American families. Why?
Currently, only 3 percent of our electricity generation comes from renewable energy sources. The reason that number is low and that we need a government mandate for it to be higher is that renewable energy is prohibitively expensive to compete in the market. If these sources could compete, they wouldn’t need the mandate.
With nuclear power not considered to be renewable, the least-cost renewable source for electricity is onshore wind. The Energy Information Administration’s (EIA) lists the levelized costs of various sources of electricity per megawatt hour projected for 2016 (in 2008 dollars):
• Conventional coal power: $78.10
• Onshore wind power: $149.30
• Offshore wind power: $191.10
• Thermal solar power: $256.60
• Photo-voltaic solar power: $396.10
In effect, an RES would replace that cheap coal power with expensive renewable power. But this doesn’t even reflect the true costs associated with renewables. Wind and solar cannot be turned on at will. As a result, increasing dependence on wind adds variability and uncertainty to the power grid that must be offset by quick-ramping power sources (like natural gas turbines) to maintain a relatively constant flow of electricity. Further, the best places to build wind and solar are located far from where it’s needed, which requires billions of dollars in high-capacity transmission line construction. These add significant costs to an already expensive power source.
One Republican Senator supportive of the bill said, “The beauty of this is that it’s not cap and trade.” But like cap and trade, it’s an economy killer. Mandated higher electricity prices have rippling effects throughout the economy. More expensive electric bills force businesses to make production cuts and reduce labor.
A Heritage Foundation generic analysis of an RES found that a 22.5 percent RES by 2025 would cause household electricity prices to jump 36 percent, and industry prices would rise by 60 percent by 2035. There would be 1 million fewer people working on average with the RES in effect. And as the mandated level of renewable use rises over time, so do the losses imposed on the economy. Summing up the impacts for 2012–2035 yields a total loss of $5.2 trillion in GDP.
This is not an acceptable substitute for cap and trade, and its bipartisan introduction does not make it a good idea. If some politicians believe wind and solar are economically viable for their respective states, they should work with state legislators to pass something for their state and not allow the rest of America to endure the economic pain of a national RES.
Nicolas Loris is a Research Assistant at The Heritage Foundation’s Roe Institute for Economic Policy Studies. Loris studies energy, environment and regulation issues such as the economic impacts of climate change legislation, a free market approach to nuclear energy and the effects of environmental policy on energy prices and the economy.
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