News: CJ Exclusives

Study: N.C. Renewable Mandate Costs Jobs, Income

Green energy requirement will harm economic development, authors say

RALEIGH — North Carolina’s law mandating electric utilities to increase their use of renewable energy sources has caused the loss of nearly 24,000 jobs, $14.4 billion in forgone personal income, and will boost ratepayers’ annual bills by $149 million more than they would have paid if they hadn’t been forced to buy renewable energy.

Those were among the findings of a study being released later today by a team of investigators at Strata Policy of Logan, Utah, a free market environmental and energy research organization, and the Institute of Political Economy at Utah State University. (Read the study here.)

The study also determined that higher costs resulting from North Carolina’s renewable energy use limited the average family’s potential income growth by $3,870, cut electricity purchases by industrial customers by nearly 14 percent, and will continue to penalize commercial consumers, “posing potential threats to the competitiveness of North Carolina’s commercial business base.”

Aside from the negative economic impacts, the renewable energy law is structured in a convoluted way making it difficult for the law to achieve its stated goals unless price caps on renewables are removed, hiking consumer costs even more, the study found.

Allowing the burning of swine and poultry waste to satisfy as “biomass” renewable mandate “is not as environmentally friendly as other sources of renewable generation,” and can cause air pollution that contributes to acid rain, the report said.

The study examined so-called Renewable Portfolio Standards that most states enacted to force electricity generators and utilities to reduce their use of fossil fuels while ratcheting up renewable energy usage.

In 2007, Gov. Mike Easley signed the North Carolina law. The state’s Renewable Energy and Efficiency Portfolio Standard requires investor-owned utilities to produce 12.5 percent of retail electricity sales from eligible renewable resources by 2021. Municipal utilities and electrical cooperatives must use 10 percent renewable energy by 2018.

The renewable energy sources eligible for use in North Carolina are: solar-electric; solar thermal; wind; hydropower up to 10 megawatts for utilities and 30 percent for municipalities and cooperatives; ocean current or wave energy; biomass using Best Available Control Technology for air emissions; landfill gas; combined heat and power using waste heat from renewables; and hydrogen derived from renewables.

Strata Policy and the Utah State investigators used a theoretical model, an empirical analysis, and a survey of legal rules to reach its conclusions.

“Our theoretical analysis found that North Carolina’s RPS will raise electricity prices significantly across all sectors, with the brunt of the costs falling upon the commercial sector,” the report stated. That analysis was performed by Beacon Hill Institute at Suffolk University for the Strata investigators.

Electric utility companies are allowed within limits to recoup costs for the higher-priced renewable energy. The annual caps are $34 from residential customers, $150 from commercial customers, and $1,000 from industrial customers.

Those cost caps limit the amount consumers would pay for renewables, but the study says they also prevent the state from meeting its mandate for the percentage of renewables utilities must use. Utilities will wind up paying more to purchase high-priced renewable energy than they can recover from their ratepayers.

“If the legislature lifts the cost caps for the purpose of meeting its mandate, electricity prices will skyrocket,” according to the report.

“Our empirical analysis finds significant harmful effects on the economies of all states with RPS,” the report stated.

That analysis, performed by Tyler Brough of Utah State, used “a time-honored empirical methodology in finance and economics and a standard course of analysis” first fashioned by the Philadelphia Federal Reserve, according to the study. It indexes all states over multiple periods of time to achieve an average.

It shows “a precipitous drop surrounding the enactment of an RPS policy [suggesting] a negative effect of an RPS policy on a state economy.” The authors said further study is needed “since state economies also appear to decline several months prior to the enactment of an RPS.”

The empirical analysis also used a separate model showing “the cumulative effect of the enactment of an RPS policy on state electricity sales is a staggering 13.7 percent decline. This is, perhaps, not surprising as the RPS increases the cost of electricity generation.”

“Real personal income declines in the long run by 3.6369 percent, which figures to a loss of $14.4 billion in 2013, or $3,870 less per family. Non-farm employment declines in the long run by 2.8 percent. Only one analyzed component of non-farm employment, manufacturing employment, does not experience a long-term suppression in response to an RPS policy,” the report stated.

“Most significantly … at the end of last year, North Carolina had 23,769 fewer jobs than it would have had without the RPS. There can be no doubt that the combined economic effect on an RPS enactment … is a severe decline in the North Carolina economy,” the report said.

The study also concluded that legal rules of the North Carolina RPS hinder compliance with the requirement for generation from poultry and swine waste.

“The stated central purpose of every RPS, and in the general promotion of renewable energy, is the mitigation of global climate change,” the report said.

Yet the combustion of swine and poultry waste “seems to defeat that purpose” because other pollutants may increase, such as nitrogen-oxides, which, “dissolved in the moisture of the atmosphere cause acid-rain and immediately end up in surface waters,” the report said.

The mandates for meeting swine and poultry waste renewable energy have been delayed because of lack of available technology, difficulties connecting power produced by swine and poultry waste to the electricity grid, and other concerns, the report said.

“All these factors stem from previous and ongoing bureaucratic mismanagement, which are inherent to REPS — and government mandates for renewable electricity in general — and are unavoidable constraints on achieving compliance,” the report said.

Meeting “innumerable state and federal laws and regulations regarding the protection of the environment” heavily increased utilities’ legal costs.

Failure to comply with the state mandate “causes not only a punitive response from the federal government for not meeting its expectations, but it also exposes utilities to the penalties of non-compliance with the REPS itself — a legal double-whammy,” the report said.

Ryan Yonk, an assistant professor at Utah State, one of the study’s authors, noted that most studies of renewables account for the benefits of the policy shift but not the costs.

“I have no doubt there are jobs associated with solar, but those are the things that are relatively easy to see,” Yonk said.

“You can count up the number of folks that work in a solar facility, or count up the number of folks who are associated with the wind [farms], run them through the modeling of those standard economic effects, and come up with an estimate,” Yonk said.

“We believe our methodology is better at capturing the unseen effects of a policy like the RPS that affects individuals and families directly, things like [the] unemployment rate, things like household income, and things like overall economic activity,” he said.

“By doing empirical research, working through the methodology appropriately, using a peer review process, we’re very comfortable, in fact, that that consistency is correct” in the negative effects that were found through their research, Yonk said.

“If renewable energy really is going to be the future, it’s going to have to compete in a marketplace where it competes on price, it competes on reliability, and it competes directly for consumers without government mandate,” he said.

Dan E. Way (@danway_carolina) is an associate editor of Carolina Journal.