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Why repealing renewable energy mandates is good for the economy

By   /   February 19, 2015  /   No Comments

Photo by: Shutterstock

Photo by: Shutterstock

By Joseph Nichols | Watchdog Opinion

As “clean energy” initiatives gained momentum, many states began enacting Renewable Portfolio Standards (RPS) that gave government handouts to renewable energy companies and hiked electricity prices for consumers.  Ohio led the charge against these ill-conceived mandates by becoming the first state to roll back its standards in 2014.  But renewable energy companies and their cronies have fought back.  According to a report released by the Pew Charitable Trusts, Ohio’s RPS rollback is to blame for millions of dollars of investment and thousands of jobs leaving the state.

The Beacon Hill Institute estimated that Ohio’s RPS would cost the state’s electricity consumers an additional $8.6 billion from 2016 to 2025.  The key cost driver is that the RPS forces Ohio’s utilities to use less-efficient sources to generate electricity.

Of course, utilities largely pass along these compliance costs to customers.  Large industrial-scale electricity users are especially hard-hit.  The added costs force them to pay their employees and stockholders less, reduce job growth and investment, or increase their prices.  The same applies to commercial electricity users such as “Main Street” small businesses.

At the bottom of the hill, catching all the cost increases that have accumulated, are ordinary Ohioans.  They face higher prices for not only their own electric bills, but also for any other product or service that uses electricity.

Research by Dr. Wayne Winegarden finds that these higher costs disproportionately impact low-income households. Consequently, more families will need to apply for public benefits, such as Ohio’s Home Energy Assistance Program, because of energy poverty.

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Pew argues that repealing RPS is bad policy primarily on economic grounds.  Their report cites research showing that the renewable energy industry provided 5,800 jobs in Ohio in 2013, and has the potential to attract $3.3 billion worth of investment by 2023.

They claim that taking away these government subsidies, however, will force renewable energy companies to take their valuable employees and “economic activity” elsewhere.  States should compete for their valuable, job-creating business with credits and handouts rather than shoo them away with “policy uncertainty.”

Pew essentially claims that the Ohio economy benefits when the state government decides how to allocate resources rather than millions of individuals comprising the state energy market. This way of thinking would have Bastiat rolling over in his grave.

Further, many RPS supporters claim that such mandates actually help consumers by lowering their total electric bills.  Even if this claim is true, the savings they trumpet are due to the energy efficiency targets rather than the renewable mandates.

Photo by: Shutterstock

Photo by: Shutterstock

In other words, RPS advocates make the strange argument that the mandates benefit consumers because while they do increase electricity prices on a per-unit basis, they still reduce electric bills overall since consumers are forced to use less electricity.  But these claims inevitably leave out any energy efficiency measures that consumers would implement anyways—without government mandates—because it makes economic sense for them to do so.

According to a survey by the National Conference of State Legislatures, 29 states have renewable portfolio standards, nine states have voluntary targets rather than mandates, and the other 12 state governments have left the issue to the market.  More recently, West Virginia’s governor followed Ohio’s lead by signing a bill to repeal his state’s RPS.  The Colorado Senate recently passed legislation to roll back their mandates as well.

There is strong theoretical and empirical evidence that the costs of these crony handouts to renewable energy companies outweigh the benefits.  The best policy for states is to leave energy consumption decisions to consumers in the market rather than legislate them.

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Joseph is a William and Helen Diehl Transparency Fellow a the Buckeye Institute for Public Policy Solutions.