Press Release

Report touting jobs gains from renewable energy subsidies ‘offers nothing of substance’

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Click here to view and here to listen to Dr. Roy Cordato discussing this economic analysis.

RALEIGH — A recent report “claims a great deal, but offers nothing of substance” as it touts thousands of new jobs and other economic benefits linked to North Carolina taxpayers’ subsidies for renewable energy. That’s the bottom-line conclusion in a new economic analysis prepared for the John Locke Foundation.

“This new peer review analysis should strike the fatal blow against the renewable energy industry’s claims,” said Dr. Roy Cordato, JLF Vice President for Research and Resident Scholar. “When trained economists looked at the assumptions, facts, and conclusions in the industry’s report, the results were devastating. There’s a failure to understand or apply basic economic theory. As the peer review concludes, the industry’s report ‘does not address the economic impact of North Carolina’s renewable energy programs.'”

The N.C. Sustainable Energy Association has been trumpeting the initial 71-page report. It claims a 2007 North Carolina law featuring a state renewable energy mandate has generated more than 21,000 “job years,” or the equivalent of 21,000 one-year jobs. The report also contends $72 million in government subsidies led to more than $1 billion in renewable energy investment and another $350 million investment in energy efficiency measures in North Carolina.

“These benefits are mismeasured and spurious,” according to the peer review from a team of economists at the Beacon Hill Institute at Boston’s Suffolk University. Led by Dr. David Tuerck, who chairs the Suffolk economics department, the peer reviewers detail a number of “shortcomings.” “Orthodox cost-benefit analysis will not find anything like what the report’s authors estimate.”

The industry report “fails to properly construe the relationship between aggregate spending and employment,” “grossly overestimates the relationship between government spending and increased overall spending in several ways,” and “fails to produce any evidence that subsidies for ‘renewable energy’ alone … have led to a penny of cost-savings,” according to the Beacon Hill Institute team.

The peer review’s first target is the claim that $72 million in government spending led to nearly $1.4 billion in new investment. “What they leave out, of course, is that the $72 million didn’t actually cause that much new spending,” Tuerck’s team writes. “It transferred investment that would have taken place in other industries into green energy.”

“In other words, they are robbing Peter to pay Paul, and claiming the program increased total spending because now Paul spends more, but they ignore accounting for Peter,” the Beacon Hill Institute team writes. “The headline spending and jobs estimates the authors make are based on myopically accounting only for Paul.”

The peer review also questions an estimate of a $100.7 million positive fiscal impact. “Claiming a ‘positive fiscal impact’ for these programs is akin to trying to have your cake and eat the entire bakery, too.”

Under the most optimistic scenario, the industry could have claimed that $72 million in government spending led to an increase in total state spending of $108 million, according to the Beacon Hill Institute team. That calculation would have depended on the state running a deficit.

Instead, renewable energy subsidies actually came at the expense of other government programs or transfers. “If that is the case, the effect of the $72 million is entirely ambiguous (and probably close to zero),” according to the peer review.

The industry report also claims that renewable energy investments led to $276 million in “avoided cost and retail energy savings no longer spent on conventional energy.” Beacon Hill Institute economists raised doubts about the assumptions used in reaching that number.

“If it were the case that cost-savings of this magnitude were available, then private energy firms would have been leaving hundreds of millions of dollars on the table — that is, definitely not maximizing profit — for no apparent reason,” according to the peer review. “If the authors believe they have overturned the fundamental basis for microeconomic theory, they should specify why.”

Tuerck’s team questions the industry report’s assumptions about the future of renewable and conventional energy sources. “They do not even offer the possibility that nonrenewables will remain cheaper than renewable energy,” the Beacon Hill Institute economists note. “Of course, if you assume with certainty the result you want, you will obtain that result.”

Subsidies will lead to improvements in North Carolina’s economy only if the state’s businesspeople are “insufficiently knowledgeable” to realize this fact on their own, according to the peer review.

“If all ‘reasonable people’ can agree that renewable energy is imminent and prices will collapse relative to coal and natural gas, the government does not need to subsidize it,” the Beacon Hill Institute economists write. “It is only if businesspeople are complete idiots for this not to be the case.”

The peer review also notes the fact that most future savings identified in the industry report are tied to energy-efficiency measures, not renewable energy.

“It’s hard to read this peer review and still grant the industry-sponsored report any degree of credibility,” Cordato said. “This information should offer great help to policymakers considering the future of North Carolina’s renewable energy mandates and subsidies.”

The Beacon Hill Institute report, “Peer Review of ‘The Economic, Utility Portfolio, and Rate Impact of Clean Energy Development in North Carolina,'” is available at the JLF website. For more information, please contact Dr. Roy Cordato at (919) 828-3876 or [email protected]. To arrange an interview, contact Mitch Kokai at (919) 306-8736 or [email protected].

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We are North Carolina’s Most Trusted and Influential Source of Common Sense. The John Locke Foundation was created in 1990 as an independent, nonprofit think tank that would work “for truth, for freedom, and for the future of North Carolina.” The Foundation is named for John Locke (1632-1704), an English philosopher whose writings inspired Thomas Jefferson and the other Founders.

The John Locke Foundation is a 501(c)(3) research institute and is funded solely from voluntary contributions from individuals, corporations, and charitable foundations.