STUDY: Renewable Energy Mandates Drive Electricity Costs Sky-High

‘The case for ruthlessly seeking out the least expensive reductions in carbon emissions is rapidly strengthening…’

Solar Industry Doesn't Want to Be Accountable for T

PHOTO: Dan Way/Carolina Journal

(Lionel Parrott, Liberty Headlines) Renewable portfolio standards—regulations that mandate increased energy production from renewables like wind and solar—are being implemented across the nation to address climate change.

Do they work? A study from an institute based at the University of Chicago says no.

RPS have become prevalent in recent years, with 29 states and the District of Columbia having enacted such policies.

Seeking to understand the results behind these policies, the Energy Policy Institute conducted a study of states that have adopted such standards and compared them with states that have not.


The study found that renewable portfolio standards do indeed reduce carbon dioxide emissions—but at a very, very steep cost.

And those carbon dioxide emissions reductions aren’t very impressive, bringing the authors of the study to conclude there are more effective ways to go about tackling climate change.

“The increasing urgency of climate challenge means that the case for ruthlessly seeking out the least expensive reductions in carbon emissions is rapidly strengthening,” said Michael Greenstone, the Milton Friedman distinguished service professor in economics who co-authored the study. He’s also the director of the Energy Policy Institute.

The least expensive? That’s a descriptor that certainly doesn’t apply to renewable portfolio standards.

The study found that consumers end up paying a hefty amount for a marginal reduction in emissions, with electricity prices rising by an average of 11 percent just seven years after RPS became law.

And twelve years after standards are implemented, the increase is a whopping 17 percent higher.

In total, in the 29 states that went with RPS, consumers paid about $125.2 billion more for electricity than they would have done otherwise, much more than advocates of the standards predicted.

The study found a couple reasons as to why they’ve consistently underestimated the amount—and it came down to hidden costs.

First, because renewables like wind and solar aren’t as reliable (since they’re dependent on the weather), the costs for back-ups must be factored in.

The unreliability of renewables, combined with mandates to use them, also prematurely displaces “baseload generation”—and that cost gets passed onto the consumers.

In addition, facilities that generate renewables take up a lot of space, forcing many of them to be located far away from population centers. This requires substantial infrastructure to be built just to transmit the energy.

Renewable advocates point to the fact that the price of wind and solar have decreased over time. But that doesn’t tell the whole story.

“While the retail price for wind and solar has dropped in recent years, our research suggests that the majority of RPS programs’ costs are through these indirect channels associated with their integration into a highly-complex electricity grid,” said Greenstone.

In the end, reducing these indirect costs will be the key to vastly increasing the use of renewable energy and significantly decreasing carbon dioxide emissions—but right now, those indirect costs are posing a major challenge to states adopting RPS.

There are better ways to tackle climate change, suggests Greenstone. And the problem might be that policymakers are working on increasing the use of renewables rather than aiming squarely at reducing carbon dioxide emissions.

“This study joins a growing body of evidence that demonstrates that when climate policies favor particular technologies or target something other than the real enemy—carbon (dioxide) emissions—the result is less effective and more expensive than is necessary,” he said.

“In contrast, the global experiences from carbon (dioxide) markets and taxes make clear that much less expensive ways to reduce CO2 are available right now.”

Cutting carbon dioxide through inexpensive methods is essential, the study asserts, because it will be impossible to get consumers to go along with green policies if they don’t.

Furthermore, more downscale consumers tend to be harmed the most when policies substantially increase the cost of electricity.

This regressive effect “may be especially unattractive in developing countries that account for a large and growing share of global emissions,” the study notes.

The authors of the study did offer one way in which renewable portfolio standards might redeem themselves.

They didn’t rule out the possibility that widespread adoption of these standards might reduce the cost of abandoning non-renewables over time through technological improvement.

But that technological improvement hasn’t happened yet. And using figures from the Obama administration (which pegged the social cost of releasing an additional ton of carbon at $51), the study found that the current costs of RPS exceeds their benefits, making their continued use a tough sell for fiscally prudent lawmakers.

The study concludes by saying that the best climate policy would reduce carbon dioxide emissions in advanced countries but still be cost-effective enough to see adoption in the rest of the world.

It looks like renewable portfolio standards fail to do either of those. Only time will tell if states will continue to implement these ineffective policies, or come to agree with researchers at the Energy Policy Institute that there are better approaches.