The High Cost of Renewable Electricity Mandates

March 9, 2012

In the absence of federal action to set carbon emission standards, many states have created renewable portfolio standards (RPS) on their own, whereby an agreed-upon fraction of their electricity production is supplied by renewable sources, says Robert Bryce, a senior fellow with the Manhattan Institute.

However, RPSs contain substantial hidden costs that adopting states often fail to take into account.  Indeed, the economic burden that they impose likely harms job growth as consumers and businesses alike are saddled with higher rates.

  • Thus far, 29 states, as well as the District of Columbia and Puerto Rico, have adopted RPSs.
  • However, because electricity produced from renewable sources tends to be more expensive than energy from traditional sources, RPSs tend to raise rates.
  • In 2010, the average price of residential electricity in RPS states was 31.9 percent higher than it was in non-RPS states.
  • A Heritage Foundation study estimated that by 2035, a national RPS mandate would raise residential electricity rates by 36 percent above the baseline price and industrial rates by 60 percent above the baseline price.

These higher rates can be seen among the states, where residents of states that have adopted RPSs are forced to pay above-market electricity rates in order to comply with the state mandate.

  • Of the 10 states with the highest electricity prices, eight have RPS mandates including all of the top five.
  • California, which has the tenth-highest rate, recently raised its RPS standard from 20 percent to 33 percent of energy from renewables by 2020.
  • Of the 10 states with the lowest electricity prices, only two have RPS mandates.
  • Coal-dependent states witness an even starker contrast: electricity rates in the coal-dependent RPS states increased by an average of 54.2 percent between 2001 and 2010, more than twice the increase seen in the coal-dependent non-RPS states.

This demonstrates that RPSs place substantial downward pressure on state economies, as poor families and businesses are forced to pay higher electricity rates.  In this context, it is crucial for states to recognize the importance of energy prices in economic activity and the effects that RPSs can have on an already-fragile economy.

Source: Robert Bryce, "The High Cost of Renewable Electricity Mandates," Manhattan Institute, February 2012.

For text:

http://www.manhattan-institute.org/pdf/eper_10.pdf

 

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