Publisher's note: This post, by Brian Balfour, was originally published in the ARTICLE SECTION section(s) of Civitas's online edition.
In the Tar Heel State, government mandates require that 12.5 percent of electricity must come from wind, solar, and other forms of renewable energy by 2021. Many advocates consider this a worthy goal, but at what cost to North Carolinians?
The bottom line: in our state, the mandates will raise electricity bills, cut economic output by billions of dollars, and cost thousands of jobs.
To understand why, let's look at what these mandates actually do.
Legislation passed here in 2007 established so-called renewable energy portfolio standards (RPS), setting goals for a growing share of electricity to be generated by renewable energy. The guidelines established benchmarks for public utilities of 3 percent by 2012, 6 percent by 2016, 10 percent by 2018 and 12.5 percent by 2021 and thereafter.
Because those forms of energy are more costly and less efficient, state governments eager to be seen as "green" had to make their use by utility companies mandatory. In other words, utility companies and ratepayers have no choice but to comply with these laws.
But there's a catch. According to a new study published by the Civitas Institute
, North Carolina's RPS will increase state electricity prices by 42 percent by 2020.
The experience of other states shows how this happens. Already, residential electricity prices are 29 percent higher in states with mandatory RPS than in states without them, according to data from the U.S. Energy Information Administration.
It's not surprising then, that many states are facing blowback to RPS. Instead of continuing down this path, North Carolina should look to other states that are proceeding with caution or even scrapping their RPS.
At the end of May, Maryland Gov. Larry Hogan vetoed a bill to raise his state's RPS from 20 to 25 percent, noting he couldn't support the soaring costs. Last year, West Virginia and Kansas completely repealed their RPS. And the year before that, Ohio hit the pause button on its RPS. In numerous statehouses, legislation has been proposed to either cut RPS or scrap the mandates completely.
With the soaring electricity prices associated with RPS, this shouldn't come as a surprise. According to the Brookings Institute, wind power is twice as expensive as conventional power, and solar power is three times as expensive. These higher energy costs are passed on to ratepayers, depressing economic output and disproportionately hurting the poor, who spend a larger fraction of their incomes on electricity.
Our new RPS research sheds more light on the degree and scope of these costs and explains how they impact various states differently. Understandably, we find that states with moderate RPS goals experience moderate rate increases, while states with ambitious RPS goals experience more significant rate increases.
The economic costs associated with RPS go beyond heftier electricity bills for ratepayers. Because energy is an essential factor of production activities, businesses forced to absorb higher electricity bills must seek to curb expenses elsewhere - often resulting in job or wage reductions.
As a result, net economic output in states with RPS is reduced - often by billions of dollars. Our study concludes that North Carolina's RPS will reduce its economic output by more than $7 billion in 2020, for example.
By contrast, South Carolina's lower 2.1 percent RPS leads to a much smaller reduction - $198 million - in economic output in the same year.
Finally, we know that less economic output means fewer jobs. We anticipate RPS to cost thousands of jobs per state, varying based on each state's unique labor market. For North Carolina, we estimate that RPS will cost our state 50,000 jobs in 2020 alone.
Naturally, advocates of RPS will say the mandates create some jobs in building and maintaining solar, wind, and other renewable capacity. The number of these jobs, however, is dwarfed by the job losses caused by reduced economic output.
Last year legislation was introduced to freeze North Carolina's RPS at current levels and protect businesses and consumers from harmful spikes in energy costs. Unfortunately, that legislation failed, and disappointingly no legislative momentum to curb the RPS emerged in this year's legislative session.
As our research shows and numerous states are recognizing, forcing inefficient and expensive renewable energy into the mix imposes significant harm on the state's economy, especially harming the state's most economically vulnerable.
It's time for North Carolina lawmakers to join these other states and ditch our state's renewable energy mandate and provide low-income households relief from rising utility bills. Doing so would also make North Carolina more competitive for job and investment growth. At minimum, it is time to freeze the mandate and more closely examine its real costs.
Editor's Note: This article first appeared at the Charlotte Observer.
Timothy J. Considine is professor of energy economics at the University of Wyoming. Brian Balfour is Executive Vice President at the Civitas Institute.