TCS Daily

Deviant Standard

By Marlo Lewis - September 23, 2002 12:00 AM

Of all the anti-energy provisions in the misnamed Senate "energy bill," the most economically, ethically, and constitutionally challenged is the proposed "renewable portfolio standard." If enacted, this provision will fleece consumers, establish a new corporate welfare entitlement, and further subvert what remains of our federal system.

A renewable portfolio standard, or RPS, is a set-aside program that requires utilities to generate a certain portion of their electricity from "renewable" sources, typically wind, solar power, geothermal energy, wood and crop residues ("biomass" fuel), and landfill waste.

Essentially a quota system, an RPS lets American politicians play Soviet Commissar, dictating not only which production process a company shall use but also what market share its product shall attain.

Under the Senate bill's RPS, utilities must generate increasing amounts of renewable-based electricity, reaching 10 percent in 2019-2020. Utilities that fail to meet their quota must make up the shortfalls by purchasing "renewable energy credits," either from the government or from utilities that exceed their quota. If a utility neither meets its quota nor purchases enough credits, it must pay a fine on every kilowatt-hour by which it falls short.

The Senate bill's RPS is first and foremost a confession of failure - a tacit admission that previous federal and state handouts have failed to make renewable power even remotely competitive.

Since 1978, the federal government has lavished over $11 billion in subsidies on the renewable industry, according to energy analyst Robert L. Bradley, Jr. These goodies include production tax credits, preferential accelerated depreciation, mandatory federal agency purchases, and taxpayer supported R&D.

Many states also prop up renewable electricity via corporate tax credits, property and sales tax exemptions, rebates, grants, and low-interest loans. Fifteen states ding consumers with "public benefits charges" - taxes added to monthly electric bills for the special-interest benefit of renewable energy developers. Sixteen states have RPS programs.

Yet after two-plus decades of market rigging subsidies, taxes, and regulation, non-hydro renewables supply only 2.4 percent of net U.S. electric generation. Wind turbines contribute a paltry 0.15 percent, and solar power an insignificant 0.02 percent. Even with continuing state and federal support, renewables are expected to fuel only 2.9 percent of U.S. generation in 2020, according to the Energy Information Administration (EIA). The Senate bill's 10-percent RPS will just throw more good money after bad.

Because renewable fuels are cheap (crop residues, municipal trash) or even free (wind, sunshine), one might assume renewable-based power is very economical. But, as Cato Institute economist Jerry Taylor explains, the capital costs of renewable energy plants are so high that it is almost always cheaper to buy electricity made from natural gas, the primary source of most new generating capacity.

High capital costs are not the only problem. The intermittent nature of wind and solar power makes those technologies a poor fit with the digital economy, which depends on super-reliable ("24x7") electric power. Renewable-generated electricity tends to have high transmission costs, because the best sites for wind, solar, and geothermal power are seldom near urban centers. "Power plant sprawl" from wind "farms" can impair scenic and property values.

Consider the recently proposed Cape Cod offshore wind project. This "facility" would consist of 170 wind turbines, each 426 feet high (the U.S. Capitol is 300 feet high), spread over 26 square miles of one of the world's premier fishing, boating, and wildlife areas. Many locals are understandably upset. According to energy analyst Glenn Schleede, a single mid-size (250 Megawatt) natural gas plant could produce the same amount of power (about one percent of New England's annual consumption), yet would occupy just a few acres of land.

According to a July 2000 study by the National Renewable Energy Laboratory, more than one-third of U.S. consumers now have the option to purchase "green power" (electricity made wholly or partly from renewables) if they are willing to pay premiums ranging from 0.4 cents to 20 cents per kilowatt-hour. However, the study notes, less than one percent of utility customers choose "green power" when given the chance. Presumably, "green power" premiums would be higher - and customer participation even more dismal - if taxpayers and ratepayers were not already subsidizing renewable-based power. Should the U.S. Government force companies to sell what consumers do not want to buy?

Citing a recent EIA study, proponents claim a 10-percent RPS will add "only" $3.1 billion to the nation's electricity bill in 2020. By this pork-barrel logic, one can justify any consumer or taxpayer rip-off. That is the nature of corporate welfare entitlements - they filch relatively small sums from millions of households to enrich a greedy few. But EIA's estimate is really beside the point, because the Senate bill's RPS is the camel's nose under the tent - a floor, not a ceiling. Once enacted, the RPS will strengthen the renewable lobby and grow like other entitlements.

Proponents also claim the RPS will help states meet federal clean air standards. EIA, however, projects "little impact" on emissions, because the least costly way of meeting the standard is to mix biomass into existing coal plants.

More importantly, a national RPS will make a mockery of the Clean Air Act and our federal system. What is the point of states devising "state implementation plans" if the Senate can mandate one-size-fits-all "solutions" that take no account of local economic and environmental circumstances? Indeed, why pretend we have a system of dual sovereignty if the Senate can overrule the 34 state governments that have not enacted renewable portfolio standards?

Because the Senate bill's RPS is a floor, not a ceiling, its potential to exploit consumers, distort energy markets, and supplant state policy regimes is vast. Better to have no energy bill this year than one that incorporates a renewable portfolio standard.

Marlo Lewis is a senior fellow at the Competitive Enterprise Institute in Washington, D.C.

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