FEATURED:

State renewable energy mandates can do more harm than good

State renewable energy mandates can do more harm than good
© Getty Images

The same debate about a common environmental policy is playing out in at least four states. New Jersey, California, Nevada, and Michigan all have discussed changing, raising, or enacting a renewable portfolio standard (RPS) in the past few weeks.

Renewable portfolio standards require that utilities within a state purchase a percentage of their electricity from qualifying renewable sources. Advocates of RPS argue they are vital for reducing carbon emissions and preventing climate change. Since 29 states have enacted these policies, they have generated a lot of academic research. Unfortunately, that research shows that RPS are expensive and ineffective methods for reducing carbon emissions.

ADVERTISEMENT
While some environmentalists claim that enacting an RPS will lower electricity prices, more reasoned studies have shown the opposite. Carolyn Fischer, a senior fellow with the environmentally-minded think tank Resources for the Future, wrote an influential paper in 2010 that examined the conditions required for an RPS to lower electricity prices. She found that it could only happen at extremely low requirements — between 3 percent and 7.5 percent of total electricity demand in the state. She notes that prices grow quickly once RPS are above 10 percent, a level that almost every state’s RPS exceeds.

 

Other researchers have looked at the historical impacts of an RPS on electricity prices using standard statistical techniques. They find electricity price increases that range from 3 percent on the low end to more than 11 percent. To put an 11 percent increase into context for consumers, that is equivalent to paying at least one extra utility bill each year.

Sobering statistics from the U.S. Energy Information Administration show that higher electricity prices cannot be ignored: One in five households have foregone or reduced “basic necessities like food and medicine to pay an energy bill.” Further, low-income households spend a larger portion of their income on energy — higher electricity prices hit them hardest.

Not only do these policies hurt the poor, they also appear to be ineffective and inefficient methods for achieving the environmental goals they intend to reach.

Several researchers have found only small carbon emission reductions from RPS. Worse, a 2018 paper in Energy Economics estimated that because RPS only promote certain renewables and exclude other low-carbon or zero-carbon sources like nuclear, they are much more expensive means of reducing the same amount of carbon as technology-neutral clean energy standards.

In fact, current RPS policies were estimated to cost a mind-numbing 18.6 times more than a broader portfolio that includes those low-carbon sources. Even one of the researchers’ more moderate models estimated that RPS policies will still likely cost twice as much as a technology-neutral portfolio to achieve the same emissions reduction.

Despite the renewable portfolio standard’s popularity among state policymakers and environmentalists, there are much better methods for promoting clean energy that do not require saddling low-income individuals with higher electricity prices.

One simple example are green power options that allow consumers to opt into buying electricity from renewable sources for an additional cost. Although cities are sometimes required to provide these options, they also emerge naturally in competitive electricity markets like Texas because many consumers want to buy electricity from cleaner sources. Unlike RPS, green power options can satisfy consumers’ demands for clean energy without pushing excessive costs onto others.

Josh T. Smith is a research manager with the Center for Growth and Opportunity at Utah State University.