“Bringing onshore wind production to North Carolina is part of my ‘all-of-the-above’ energy strategy.” Gov. Pat McCrory delivered that statement while announcing a taxpayer- and ratepayer-subsidized wind power plant to be built in eastern North Carolina.
Imagine that you are the CEO of a company and there are several different materials or technologies that you can use to produce your product. For example, it is not unusual that a product can be made using steel, aluminum, or plastic.
Within those categories, it can be made using different grades and combinations of those materials. There is also probably a range of technologies that can be used depending on the materials that are chosen.
What would you do? As a prudent, profit-maximizing CEO, you would choose the productive inputs — materials, technologies, etc. — that best suit your customers’ needs while minimizing the business’s costs of production.
What you would not do is “pursue an all-of-the-above strategy.” In business, as opposed to a multiple-choice question on a history or science exam, “all of the above” is not a meaningful answer, and it makes no sense when choosing how and from what sources electricity should be generated.
Yet that is the strategy the governor says he is pursuing as a matter of public policy. And, in supporting subsidies and renewable energy mandates, it is the strategy his administration is suggesting that electricity producers pursue in choosing what inputs and technologies they use in generating the power that we all need to light, cool, and heat our homes and operate our businesses.
In fact, in this context, it is difficult to know what “all of the above” even means, since electricity can be generated from anything that contains energy, i.e., just about everything. In determining who gets subsidies and where the mandates should be applied, politicians and bureaucrats have to decide not only what the “all” in all of the above is but what the “above” is.
Clearly all of the different technologies for converting “stuff” to electricity cannot feasibly be subsidized and mandated. In other words, the decision to pursue a so-called “all-of-the-above” strategy as a matter of public policy is simultaneously a decision to use the political and bureaucratic process for central planning of electricity generation.
Given that political actors have different incentives than energy producers — getting re-elected and staying in power as opposed to maximizing profits — it is logical to conclude that the industries that give the largest campaign contributions, have the most lobbyists, or can muster the most support from special-interest groups, will decide what bundle of options go into the category of “all of the above.”
It is not surprising that during this legislative session, when reductions in subsidies and mandates for renewable energy are being considered, the solar energy industry has over 20 lobbyists putting pressure on N.C. legislators.
The McCrory administration should abandon the “all-of-the-above” central planning model. North Carolina should adopt energy policies that allow utility companies and other generators of power to choose whatever energy sources offer the least expensive and most reliable power to their customers. In other words, the governor should be pursuing a market-driven “get-out-of-the-way” policy.
Such a policy implies no subsidies or mandates and no regulations aside from those that protect the health and safety of North Carolinians. Energy producers would likely focus on two things: costs and reliability. This will not lead to a result that would include anything like the “all-of-the-above” energy market envisioned by the governor.
What is likely to emerge over time, given the cost of resources and the technology needed to convert those resources into usable power, is “a few of the above.” This is probably why the governor and many in the legislature feel subsidies and mandates are “necessary.”
Subsidies and mandates offer the only way to accomplish their vision of what the “proper” mix of energy resources should look like. In energy production, as with most other industries, the claim that markets are failing is really a claim that private decisions are not giving rise to the result desired by politicians. Ultimately, it is simply an excuse for the expansion of government power.
Dr. Roy Cordato (@RoyCordato) is Vice President for Research and Resident Scholar at the John Locke Foundation.