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Renewable Energy Subsidies Regressive and Elitist

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Weekly John Locke Foundation research division newsletter focusing on environmental issues.

This newsletter highlights relevant analysis done by the JLF and other think tanks as well as items in the news.

Renewable Energy Subsidies Regressive and Elitist

My colleague Dan Way at the Carolina Journal has recently published a story that highlights a little talked about bit of hypocrisy in the progressive movement’s support for renewable energy subsidies. These subsidies are regressive, that is they benefit the well-to-do at the expense of lower and middle income households.

The article was published at on January 9th. Way points out how NC’s renewable energy mandate forces utility companies to essentially buy energy from wealthier people who may have solar panels on their roofs, for example, at prices that have to be subsidized by lower income rate payers.

This is due to what is known as "net metering." As Way explains it, "homeowners or small generators of solar power provide electricity generated from their solar facilities to a utility. That offsets the amount of money they pay in their monthly bill." The amount that the utility must pay to the small generator of solar power is the same as the amount that they charge for a kilowatt-hour of electricity to their customers. The problem is that the amount charged to customers includes not just the cost of electricity but the cost of electricity generation and transmission infrastructure. At most these small self-providers of electricity are only providing about 20 percent of their electricity, so they are still making full use of the utility’s infrastructure. Since these are infrastructure costs that are going uncompensated for by people who are in part making use of that infrastructure, then others must make up the difference. As Duke Energy’s Paul Newton points out

While net metering customers use the same utility infrastructure as any other customer, they pay a significantly lower utility bill due to the full retail rate credits they receive for the power their system produces….That full retail rate includes infrastructure costs, but that’s being reimbursed [to the solar power generators].

This is where the regressive nature of the program comes in. While the average household income of those taking advantage of the net metering subsidy is $110,000 per year, the average household income for the state as a whole is only $67,000. This program, part of North Carolina’s renewable energy mandate program passed in 2007 (typically referred to as Senate Bill 3), drives up energy costs generally by forcing utilities to purchase the most expensive forms of energy such as wind and solar instead of cheaper forms of energy like natural gas and coal. In addition, this expensive wind and solar energy is subsidized with tax breaks and direct subsidies (see Dan Way’s latest article in Carolina Journal). This in and of itself is regressive, because lower income people use a much greater proportion of their household budgets on necessities like energy than do higher income households. This fact is widely recognized. As noted by civil rights leader Roy Innis, Chairman of the Congress of Racial Equality, when referring to high-energy prices;

"Who gets hurt first? The poor and disadvantaged…Policies that unnecessarily raise energy prices destroy jobs, make poor families pay ever larger chunks of their meager incomes for energy, and cause our hard-won victories for voting and civil rights to crumble to dust." Energy Keepers, Energy Killers: The New Civil Rights Battle, p. 1.

The net metering program simply exacerbates this by introducing what can only be considered a reverse Robin Hood effect. Not only does it hurt lower income households, but it is also actually a wealth transfer scheme that benefits the well off at the expense of the poor.

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In June 2019 Roy Cordato retired from his full time position as Senior Economist and Resident Scholar at the John Locke Foundation and currently holds the position of Senior Economist Emeritus at the Foundation. From January 2001 to March 2017,… ...

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