By Joe Nichols

The Pew Charitable Trusts’ Clean Energy Initiative recently reported that investment in Ohio’s renewable energy industry fell from a lofty $750 million in 2012 to a meager $100 million in 2013.[1] They assert that such a steep drop in investment could threaten some of the 2,000 wind-related and 3,800 solar-related jobs the industry supported in Ohio during 2013. Pew fears that the future of renewable energy in Ohio—which they value at $3.3 billion from 2014 to 2023—could be in jeopardy.

Pew attributes much of this lost investment to Senate Bill 310, enacted in June 2014, which temporarily froze the renewable energy mandates enacted in 2008 under Senate Bill 221. However, federal renewable electricity production tax credits were only available at the time for projects initiated by December 31, 2012.[2] This tax credit provided an incentive to invest before the deadline—and in fact, 2012 investment far exceeded the $300 million invested in 2011.[3] Blithely comparing 2013 investment to 2012 investment—and blaming the shortfall on SB 310—therefore seems misguided.

Nonetheless, freeing Ohio’s energy market from government mandates will not hurt the state’s economy.

First, the renewable energy mandates in SB 221 are a prime example of crony capitalism, which good legislators should beat back at every chance.

Ohio’s General Assembly jump-started the state’s renewable energy industry in 2008 with Senate Bill 221. SB 221 mandated the state’s investor-owned electric utilities and retailers to gradually accomplish two goals. The first was to obtain 12.5 percent of their supply from renewables by 2024. Fifty percent of this renewable generation had to be sourced from Ohio-based companies, and 0.5 percent had to be sourced from solar power. The other goal was to reduce electricity use by 22 percent before 2025. SB 310 freezes the gradual shift to renewables from 2014-2016, moves the deadlines out two years to 2026 and 2027, respectively, and eliminates the earmark for Ohio companies.[4]

Through SB 221, the government forced the people of Ohio to buy overly expensive renewable energy products that most of them were otherwise unwilling to buy. This “rent-seeking”[5] benefits the owners and employees of renewable energy companies at the expense of other Ohioans.[6] Such crony capitalism undermines the free market principles that provide the foundation for a healthy and fair economy.

Second, any conspicuous harm to the jobs and renewable energy investment with which Pew is concerned masks other unseen benefits to the rest of Ohio’s economy.

Those jobs and investment dollars allegedly at risk in the renewable energy industry are easy to see, but they will not simply evaporate into thin air.

Rather, most of the investment dollars that Pew fears may be lost will ultimately stay in Ohio. No longer prodded into an inefficient and expensive renewable energy sector, investors and workers will freely shift their funds and labor to more productive industries. This, in turn, will allow more job creation and economic growth for the State in the long run—even if it is harder to see in the short run.[7]

Further, although some of the manpower and money may migrate to a sunnier or windier state where it may support renewable energy more efficiently, Ohio could then focus on expanding its strongest industries and making the products it is best at producing. Ohioans who want renewable energy could then buy it at a lower cost from the other states. This would be a positive step, not a negative one.

Third, eliminating the renewable energy standards will help the bottom line for all Ohioans.

Requiring utilities to generate electricity with inefficient renewable sources forces them to raise electricity prices. Since the production and sale of most goods and services requires electricity, almost everything becomes more expensive. Worse, as research by Dr. Wayne Winegarden shows, higher electricity prices have a disproportionate impact on the low-income and minority households least able to bear the burden.[8]

But lower energy bills allow businesses to hire more labor and lower their prices, and allow consumers to purchase more of the other products and services that they need and want. More jobs and lower prices is a winning combination that puts more money in the pockets of ordinary Ohio families. They can use their hard-earned cash for clothes and groceries, instead of being forced to pay for high-priced renewable energy that they don’t want and can’t afford.

Fourth, eliminating government support for the renewable energy industry will only make renewable energy companies stronger in the long run.

Repealing the mandates means that nobody will be forced to do business with renewable energy companies. They will sink or swim purely by their success at creating value for customers. That is, they will be forced to compete more intensely and rely more on the profit motive.

Such competition has two effects. First, competition separates the wheat from the chaff. Because no company or industry has the unfair advantage of customers being handed to them by the government, the best-run companies will thrive and poorly-managed companies will fail.

Second, competition will improve the quality of renewable energy products by forcing companies to be more responsive to consumer preferences. The renewable energy industry as a whole will learn to provide better products and services at better prices, rather than providing poor quality and service at a high cost because they are entitled to paying customers by government mandates.[9] Just like any other business, renewable energy companies should succeed on their own by providing people with products they want at a price they can afford.

1. Pew Charitable Trusts. “Clean Economy Rising: Manufacturing powers clean energy in Ohio.” Jan. 2015, http://www. pewtrusts.org/en/research-and-analysis/issue-briefs/2015/01/manufacturing-powers-clean-energy-in-ohio (accessed Jan. 16, 2015).

2. N.C. Solar Center at N.C. State University. Database of State Incentives for Renewable Energy, Federal Renewable Electricity Production Tax Credit. Dec. 22, 2014, http://www.dsireusa.org/incentives/incentive.cfm?Incentive_ Code=US13F (accessed Jan. 20, 2015).

3. Supra, note 1.

4. N.C. Solar Center at N.C. State University. Database of State Incentives for Renewable Energy, Ohio Alternative Energy Portfolio Standard. July 24, 2014, http://www.dsireusa.org/incentives/incentive.cfm?Incentive_ Code=OH14R&re=0&ee=0 (accessed Jan. 20, 2015)

5. Tullock, Gordon. “The Welfare Costs of Tari s, Monopolies, and Theft.” Western Economic Journal, 5:3 (June 1967), p.224-232, http://cameroneconomics.com/tullock%201967.pdf (accessed Jan. 21, 2015).

6. Interestingly, SB 221 also benefits consumers of energy efficient (EE) light bulbs at the expense of others. Utilities have responded to the energy efiiciency mandate by subsidizing EE light bulb purchases and raising electricity prices to cover the cost of the subsidies, creating a “free rider” effect. See Michaels, Robert J. “Ohio’s Energy Efficiency Resource Standard: Where are the Real Savings?” The Mercatus Center at George Mason University. Dec. 9, 2014, http://mercatus.org/publication/ohio-energy-efficiency-resource-standard- where-savings (accessed Jan. 17, 2015).

7. Bastiat, Frederic. “What is seen and what is not seen.” Selected Essays on Political Economy. Seymour Cain, trans. 1995. Library of Economics and Liberty, http://www.econlib.org/library/Bastiat/basEss1.html (accessed Jan. 19, 2015).

8. Winegarden, Wayne. “The Regressive Impact On Ohio’s Lower-Income and African-American Families from EPA’s Proposed Regulations.” Pacific Research Institute. Dec. 10, 2014, http://www.paci cresearch.org/home/article-detail/?tx_ttnews%5Btt_ news%5D=6781&cHash=854328608333c44981ccc06d456e6d8f (accessed Jan. 20, 2015)

9. Alchian, Armen A. “Competition, Monopoly, and the Pursuit of Money”. In Benjamin, Daniel K., ed, The Collected Works of Armen A. Alchian, Volume 2 (2006): p. 402-420. Liberty Fund, Inc.: Indianapolis, IN