John Locke Update / Research Newsletter

Renewable energy portfolio standards: a costly tradeoff for what, exactly?

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A bill currently before the state House, H.B. 298, introduced by Rep. Mike Hager, would eliminate North Carolina’s renewable energy portfolio standards (RPS) — a state mandate that requires electric utilities to provide 7.5 percent of their power from renewable energy sources, including especially wind and solar, that are far more expensive than conventional sources. The John Locke Foundation has long argued that the mandate, established in 2007 under SB 3, would raise electricity rates and harm the state’s economy through net losses in jobs, investment, GDP, and disposable income.

Though 30 states and the District of Columbia have RPS mandates, North Carolina is the only state in the Southeast to do so. Which is all the stranger because the same year state lawmakers saddled N.C. ratepayers with the idea, the North Carolina Utilities Commission had joined with peers in other Southeastern states to urge Congress to reject a federal RPS.  They argued (emphasis added):

The reality is that not all states are fortunate enough to have abundant traditional renewable energy resources, such as wind … this is especially true in the Southeast and large parts of the Midwest.

Because of the limited availability and cost-effectiveness of traditional renewable energy resources, we are deeply concerned that our utilities will be forced to buy renewable energy credits from the federal government. Correspondingly, our retail electricity consumers will end up paying higher electricity prices, with nothing to show for it.

Other RPS states are waking up to the overarching costs of the mandates. Studies in several RPS states are finding that their RPS requirements are net negatives on their economies. The following table compiles and presents the results for California, Colorado, Delaware, Kansas, Maine, Minnesota, Missouri, Montana, New Mexico, North Carolina, Ohio, Oregon, Pennsylvania, and Wisconsin (all put in 2012 dollars for comparison):

But … job years!

A finding of net job losses in North Carolina contrasts with the new trade association study that puts forth the statistic that the mandate "Created or retained 21,163 job years from 2007 to 2012."

The verbiage of "job years" and "created or retained" is a neat bit of slight-of-stat borrowed heavily from the Obama administration, and it has already had its desired effect: a "Point of View" column in The News & Observer arguing that, "During the depths of the great recession, the number of solar energy-sector jobs increased by 21,160 while the general economy shed more than 100,000."

"Job years" are not the same as "jobs" (let alone specifically solar jobs), and "created or retained" is not the same as "increased by." The statistic is practically unusable. The study itself breaks down the jobs created or retained to an average of 4,233 a year, but even that is unclear as to what kind of jobs they are. As Carolina Journal reported:

"I believe job-years is a way of counting temporary jobs to make them look permanent," [Beacon Hill Institute economist Paul] Bachman said. For example, much of the employment generated as a result of S.B. 3 likely was construction jobs to build infrastructure for the new renewable market, he said. Those jobs pop up for a while and go away. …

"What they don’t measure is the opportunity costs of that investment," Bachman said. Opportunity cost is a standard tool used by economists to compare how much benefit could have been gained if the money would have been placed in an alternative investment.

Considering the opportunity costs of forced investments, artificially higher electricity prices, and households forced to make budget tradeoffs to afford those higher prices they wouldn’t otherwise have had to make is what makes the net negative consequences of the RPS mandate evident. Just as it was back when North Carolina was warning Congress not to impose one on us.

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Jon Sanders studies regulatory policy, a veritable kudzu of invasive government and unintended consequences. As Director of Regulatory Studies at the John Locke Foundation, Jon gets into the weeds in all kinds of policy areas, including electricity, occupational licensing, hydraulic… ...

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