Press Release

State should repeal costly, ineffective renewable energy mandate

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Click here to view and here to listen to Jon Sanders discussing this Spotlight report.

RALEIGH — North Carolina should repeal its six-year-old renewable-energy mandate. It has raised electricity prices for consumers while failing to meet its original goals. That’s the key conclusion in a new John Locke Foundation Spotlight report, which also questions new job-related justifications for the mandate.

At the very least, state legislators should cap the mandate at its current level, according to the report. House Bill 298 would address that goal.

“Lawmakers approved this mandate in 2007 under justifications that the bill’s mandate can’t achieve,” said report author Jon Sanders, JLF Director of Regulatory Studies. “Using state policy to force an arbitrary percentage of electricity generation from unreliable, expensive sources cannot reliably meet consumers’ energy needs.”

Sanders details the history of the 2007 mandate in this latest installment of his Carolina Cronyism series. “The original legislation would deliberately raise electricity prices in North Carolina to address four stated purposes,” Sanders said. “The mandate fails to meet those purposes.”

First, the mandate was supposed to diversify resources used to “reliably meet the energy needs of consumers in the state,” Sanders said. “The overarching issue for ratepayers is what it costs them to turn on the lights,” he said. “Consumers’ energy needs include electricity that is as inexpensive as practicable. A mandate that deliberately raises prices cannot meet that need.”

Sanders also documents how the renewable energy mandate undercuts “energy security,” harms energy investment, and makes questionable choices for air quality. These results contradict the mandate’s other three stated purposes.

While failing to meet its goals, the mandate succeeds in contributing to higher electricity prices for North Carolina ratepayers, Sanders said. “In recent years, Duke Energy and its subsidiary Progress Energy have requested double-digit increases on residential rates,” he said. “Their justification involves the transition to so-called clean energy.”

These higher rates hit poor ratepayers hardest, Sanders said. “Because electricity is a basic household necessity, higher rates are highly regressive,” he said. “Households with annual incomes of $30,000 or less spend one-tenth to one-third of after-tax income on power bills.”

North Carolina’s economy will face a nearly $2 billion blow by 2021 if lawmakers allow the current mandate to proceed toward full implementation, Sanders said. “Economists from the Beacon Hill Institute at Boston’s Suffolk University have projected net costs including 3,600 lost jobs, $43 million in lost investment, $57 million in lost real disposable income, and $43 million in lost state and local revenues.”

Studies from the mandate’s supporters offer a skewed picture of its impact, Sanders said. “Advocates ignore the mandate’s original purposes and argue now that it’s about jobs, or at least it’s about ‘job years,'” he said. “You might remember the ‘job year’ as a questionable statistic linked to the Obama administration’s stimulus package. If a single job lasts for three years, it’s triple-counted as three job-years. Combine that dubious statistic with the claim that a job has been been created ‘or retained,’ and you realize quickly that the number of actual net jobs created by renewable-energy mandates is impossible to determine.”

Claims about new renewable energy-related jobs also miss another key point, Sanders said. “These studies miss the opportunity costs of lost investment, wealth, and job creation,” he said. “When government steers resources toward renewable energy, those resources are no longer available for other purposes. The studies also ignore the negative economic effects of higher electricity rates.”

Other states are starting to notice the problems linked to renewable-energy mandates, Sanders said. North Carolina is the only Southeastern state with this type of mandate, but 30 states and the District of Columbia have some form of mandate. “Studies in several other states find that these mandates cost electricity ratepayers more while causing the states to lose jobs, investment, and disposable income,” he said. “A dozen other states are considering bills to lessen, modify, or repeal these mandates.”

North Carolina is forcing utilities to chase “arbitrary percentages of handpicked ‘winner’ sources” for energy, according to the report. “These include extraordinarily inefficient options,” Sanders said. “Solar and wind power are exorbitantly expensive, dwarfing conventional sources. Plus renewable energy sources also require vastly larger amounts of land to produce power equivalent to conventional sources.”

The 2007 mandate also ignores the recent “revolution” in the energy world: extraction of oil and natural gas from shale rock formations. “Unlike the energy sources promoted by the mandate, cheap and plentiful shale gas boosts ‘energy security,’ encourages private investment and job creation, and lowers energy-related carbon emissions.”

The best option for North Carolina would involve repealing the entire 2007 legislation that created the renewable-energy mandate, Sanders said. In addition to ending the mandate, repeal of that six-year-old legislation would prevent utilities from forcing ratepayers to cover costs of building nuclear power plants, even if the plant is never completed.

House Bill 298 would not address the existing law’s nuclear plant provision, known as “construction work in progress.” H.B. 298 would cap and end renewable energy mandates, Sanders said.

“North Carolina policy should support least-cost, reliable, and efficient energy sources,” he said. “One day those could include renewable sources, but it should be left to private entrepreneurs competing and seeking innovation to bring that about.”

Jon Sanders’ Spotlight report, “Power to the People: End S.B. 3 with its expensive, regressive renewable energy portfolio standard,” is available at the JLF website. For more information, please contact Sanders 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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About John Locke Foundation

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.