N.C. energy mandates will cost thousands of jobs, cause $140 million economic hit

August 2, 2009

RALEIGH — North Carolina’s government mandates for renewable energy and energy efficiency will likely cost the state 3,600 jobs and $1.8 billion in higher electricity rates, while slashing the state’s economy by more than $140 million a year by 2021. That’s according to a new report from a Boston-based economic research team.

Click here to listen to Daren Bakst discussing this press release.

Losses could be four times as high if the state scraps caps designed to limit the impact on consumers, according to Beacon Hill Institute researchers.

“This new Beacon Hill Institute report spells out in stark detail the kind of negative impact we’ve predicted ever since the General Assembly first started discussing the energy mandates spelled out in Senate Bill 3,” said Daren Bakst, John Locke Foundation Legal and Regulatory Policy Analyst. “Supporters pushed this legislation as a tool to fight the uncertain impacts of global climate change. Some supporters even claim S.B. 3 will create jobs for North Carolina. Now we see with much more certainty that this tool is set to inflict plenty of damage on its own, including thousands of job losses.”

Approved in 2007, S.B. 3 establishes North Carolina’s Renewable and Energy Efficiency Portfolio Standard. It requires the state’s electric utility companies to generate a percentage of electricity from new renewable resources such as solar, wind, and biomass. It also requires new energy-efficiency measures.

Together, renewable sources and increased efficiency would account for 3 percent of North Carolina electricity generation by 2012 and 12.5 percent by 2021.

“Utilities are authorized to impose all their additional costs on electricity customers to cover these requirements,” said Bakst, who wrote a 2007 report outlining unintended consequences associated with S.B. 3. “Supporters of S.B. 3 have downplayed the impact of those higher costs on consumers. This Beacon Hill Institute analysis shows that those higher costs have huge negative impacts.”

Among the impacts: a loss of 1,046 jobs across the state within the next year and a total of 3,592 lost jobs by 2021. “Investment will decrease by $43.2 million, and real disposable income will fall by $56.8 million by 2021,” the report warns. “As a result, the state economic output measured in real state Gross Domestic Product will be $140.35 million lower than without the mandate.”

Job seekers, entrepreneurs, and electric ratepayers won’t be the only ones to feel the pain, Beacon Hill Institute economists warn. “The lower economic output will cause state and local tax revenue collections to fall by $43.49 million.”

Policymakers also should consider another set of even more disturbing numbers, Bakst said. “It’s important to note that these projected losses are tied to S.B. 3 as it’s written now,” he said. “Though customers are forced to pay the bill for these energy mandates, state legislators capped the amount customers are forced to pay. Those cost recovery caps limit the potential economic damage from S.B. 3.”

“The problem is that at least one major utility company has signaled that existing caps will be reached almost immediately without ever coming close to meeting the mandates,” Bakst added. “We should not be surprised if lawmakers are pressured in the years ahead to raise or remove the caps.”

Without the caps, North Carolina would take a much harder economic hit from S.B. 3, according to the Beacon Hill Institute report. The energy mandates would cost North Carolinians more than $4.4 billion. “By 2021, the state would shed more than 15,373 jobs and would lose $182.61 million in investment and $271.15 million in real disposable income,” the report explains. “In terms of real state GDP, the economy would be $606.65 million smaller.”

The Beacon Hill Institute is the research arm of the economics department at Boston’s Suffolk University. Its report uses numbers tied to NC-STAMP, a state-specific tax analysis modeling program. The model allows researchers to gauge the economic effects of state policy changes on producers, households, and governments.

“North Carolinians will face higher utility prices, which will increase their cost of living, which will in turn put downward pressure on households’ disposable income,” according to the report. “This combination of higher energy prices and lower employment will reduce incomes in North Carolina.”

Businesses and government agencies will feel the pinch as well. “The higher cost of energy will hurt firms’ profit margins, causing them to reduce investment in North Carolina,” the report projects. “State and local government revenues will suffer due to the negative economic impact of the S.B. 3 mandates. State and local governments will face the same higher electricity prices as consumers and businesses, which will further strain their budgets.”

All of these changes will hurt North Carolina’s economic growth, Beacon Hill Institute researchers warn. “The North Carolina business community will see a reduction in its competitive advantage over the 18 states that have not adopted similar legislation,” according to the report. “The result is that North Carolina will face slower growth in disposable income, employment, and state GDP over the next 12 years.”

For more information, please contact Daren Bakst at (919) 828-3876 or [email protected]. To arrange an interview, contact Mitch Kokai at (919) 306-8736 or [email protected].