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Renewable Portfolio Standards and Their Consequences

Orphe Divounguy, Ph.D. Nov 15, 2016

In an effort to reduce fossil fuel consumption, thirty states—including Ohio—adopted mandates called Renewable Portfolio Standards (RPS) that require an arbitrary percentage of a state’s energy to come from renewable sources such as wind, solar, and biomass energy. These mandates have had a profound and negative effect on state economies, job growth, and electricity prices—with very little environmental progress to show for it.

As the debate over “green energy” intensifies, policymakers must judiciously weigh the various tradeoffs and consequences of their policy choices. Caution should be exercised to ensure that new policies will not do more economic and environmental harm than good. Energy mandate advocates often tout the environmental benefits of requiring renewable energy use, but those benefits must be measured against their other consequences.

Indeed, academic research strongly suggests that RPS mandates dramatically affect electricity prices, burden lower-income families, and slow industrial production, and job creation.

Renewable energy sources cost more to generate electricity than conventional energy sources.  Economists have shown that RPS causes electricity prices to rise, and the Institute for Energy Research has reported that electricity prices are already nearly 40 percent higher in states with renewable electricity mandates.  In Youngstown, at the start of his presidential bid, Ohio Governor John Kasich stated “You want to bring more jobs back to the Mahoning Valley, in things like manufacturing? You better have the cheapest energy you can have in the world. Do you know how much these alternative energies cost? A lot more than our traditional energy sources”.

Higher electricity prices disproportionately burden lower-income families and minority communities—eating away at a greater percentage of their disposable income. In addition to confronting families with a rising electric bill, RPS mandates also impact industries that require a lot of power. When electricity prices rise, electricity-intensive businesses tend to reduce their energy consumption. The Energy Information Administration reveals that industry demand for electricity increased less in states with renewable mandates than in states without such mandates. Such reductions, of course, may be an intended effect of RPS mandates and the green lobby’s push to reduce so-called “carbon footprints.” But reducing industrial energy consumption also means that industry cuts back on production and hiring.  Higher energy bills for businesses can quickly translate into higher prices for consumers, and slower job growth.

Industry Demand for Electricity in GWh

Source: EIA

Before 2006

After 2010

Difference 2010-2006

Adopters

1,482,694

1,524,230

41,536

Non-Adopters

2,503,511

2,486,487

82,986

Difference

-1,020,817

-1,062,267

-41,450

 

Recent census data support these concerns.  The Census Bureau’s Quarterly Workforce hiring data revealed that job growth in states adopting RPS mandates fell behind states without renewable mandates. Green energy advocates argue that any job losses caused by renewable energy mandates will be off-set by job growth in “green industries.”  So far, however, green industry job growth has not been enough to make up for lost jobs suffered in other sectors.

As intended, Ohio’s RPS mandates successfully increased the state’s use of renewable energy sources. Unfortunately, the higher costs associated with renewable energy generation led to higher electricity bills for families and businesses, which led in turn to fewer job opportunities and slower economic growth for Ohio. In 2014, the General Assembly froze Ohio’s RPS so that a legislative committee could study the various economic and environmental impacts of renewable energy mandates. Policymakers would do well to remember that even policies with the best intentions inevitably inflict unintended consequences.