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P. 1
A Federal Renewable Electricity Requirement, Cato Policy Analysis No. 627

A Federal Renewable Electricity Requirement, Cato Policy Analysis No. 627

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Published by Cato Institute
Rising energy prices and climate change have changed both the economics and politics of electricity. In response, over half the states have enacted "renewable portfolio standards" (RPS) that require utilities to obtain some power from "renewable" generation resources rather than carbon emitting fossil fuels. Reports of state-level success have brought proposals for a national standard. Like several predecessor Congresses, however, the most recent one failed to pass RPS legislation.

Before trying one more time, legislators should ask why they favor a policy so politically correct and so economically suspect. Support for a national program largely stems from misleading claims about state-level successes, misunderstandings about how renewables interact with other environmental regulation, and misinformation about the actual benefits renewables create.

State RPS programs are largely in disarray, and even the apparently successful ones have had little impact. California's supposedly aggressive program has left it with the same percentage of renewable power as in 1998, and Texas's seemingly impressive wind turbine investments produce only two percent of its electricity. The public may envision solar collectors but wind accounts for almost all of the growth in renewable power, and it largely survives on favorable tax treatment. Wind's intermittency reduces its efficacy in carbon control because it requires extra conventional generation reserves. Computer-generated predictions about a national RPS are generally unreliable, but they show that with or without one the great majority of generation investments for the next several decades will be fossil-fueled.

Even without the technological and environmental shortcomings of renewables, the case for a national RPS is economically flawed. Emissions policies are moving toward efficient market-based trading systems and more rational setting of standards. A national RPS clashes with principles of efficient environmental policy because it is a technological requirement that applies to a single industry. Arguments that a national RPS will create jobs, mitigate energy price risks, improve national security and make the United Sates more competitive internationally are in the main restatements of elementary economic fallacies. It is hard to imagine a program that delivers as little in theory as a national RPS, and the experiences of the states indicate that it delivers equally little in practice.
Rising energy prices and climate change have changed both the economics and politics of electricity. In response, over half the states have enacted "renewable portfolio standards" (RPS) that require utilities to obtain some power from "renewable" generation resources rather than carbon emitting fossil fuels. Reports of state-level success have brought proposals for a national standard. Like several predecessor Congresses, however, the most recent one failed to pass RPS legislation.

Before trying one more time, legislators should ask why they favor a policy so politically correct and so economically suspect. Support for a national program largely stems from misleading claims about state-level successes, misunderstandings about how renewables interact with other environmental regulation, and misinformation about the actual benefits renewables create.

State RPS programs are largely in disarray, and even the apparently successful ones have had little impact. California's supposedly aggressive program has left it with the same percentage of renewable power as in 1998, and Texas's seemingly impressive wind turbine investments produce only two percent of its electricity. The public may envision solar collectors but wind accounts for almost all of the growth in renewable power, and it largely survives on favorable tax treatment. Wind's intermittency reduces its efficacy in carbon control because it requires extra conventional generation reserves. Computer-generated predictions about a national RPS are generally unreliable, but they show that with or without one the great majority of generation investments for the next several decades will be fossil-fueled.

Even without the technological and environmental shortcomings of renewables, the case for a national RPS is economically flawed. Emissions policies are moving toward efficient market-based trading systems and more rational setting of standards. A national RPS clashes with principles of efficient environmental policy because it is a technological requirement that applies to a single industry. Arguments that a national RPS will create jobs, mitigate energy price risks, improve national security and make the United Sates more competitive internationally are in the main restatements of elementary economic fallacies. It is hard to imagine a program that delivers as little in theory as a national RPS, and the experiences of the states indicate that it delivers equally little in practice.

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Rising energy prices and climate change havechanged both the economics and politics of elec-tricity.Inresponse,overhalfthestateshaveenact-ed “renewable portfolio standards(RPS) thatrequire utilities to obtain some power from “re-newablegenerationresourcesratherthancarbon-emitting fossil fuels. Reports of state-level successhave brought proposals for a national standard.Like several predecessor Congresses, however, themostrecentonefailedtopassRPSlegislation.Beforetryingonemoretime,legislatorsshouldask why they favor a policy so politically correctand so economically suspect. Support for national program largely stems from misleadingclaimsaboutstate-levelsuccesses,misunderstand-ings about how renewables interact with otherenvironmental regulation, and misinformationabouttheactualbenefitsrenewablescreate.StateRPSprogramsarelargelyindisarray,andeventheapparentlysuccessfuloneshavehadlittleimpact. California’s supposedly aggressive pro-gram has left it with the same percentage of renewablepowerasin1998,andTexas’sseeming-ly impressive wind turbine investments produceonly two percent of its electricity. The public may envision solar collectors but wind accounts foralmost all of the growth in renewable power, andit largely survives on favorable tax treatment.Wind’sintermittencyreducesitsefficacyincarboncontrolbecauseitrequiresextraconventionalgen-eration reserves. Computer-generated predictionsaboutanationalRPSaregenerallyunreliable,butthey show that with or without one the greatmajority of generation investments for the nextseveraldecadeswillbefossil-fueled.Even without the technological and environ-mentalshortcomingsofrenewables,thecasefornational RPS is economically flawed. Emissionspoliciesaremovingtowardefficientmarket-basedtradingsystemsandmorerationalsettingofstan-dards. A national RPS clashes with principles of efficientenvironmentalpolicybecauseitisatech-nological requirement that applies to a singleindustry. Arguments that a national RPS will cre-ate jobs, mitigate energy price risks, improvenationalsecurityandmaketheUnitedSatesmorecompetitive internationally are in the mainrestatements of elementary economic fallacies. ItishardtoimagineaprogramthatdeliversaslittleintheoryasanationalRPS,andtheexperiencesof the states indicate that it delivers equally little inpractice.
 A Federal Renewable Electricity Requirement 
What’s Not to Like? 
by Robert J. Michaels
_____________________________________________________________________________________________________
 RobertMichaelsisaprofessorofeconomicsatCaliforniaStateUniversity,Fullerton,andanadjunctscholarattheCatoInstitute.HeisalsoaseniorfellowattheInstituteforEnergyResearch.
Executive Summary 
No. 627 November 13, 2008
 
Introduction
High expectations for “renewable energy”uniteactivistswhodecryAmerica’srelianceonforeignoil,thehighcostoffossilfuels,andtheenvironmental damage they cause. By con-trast, the public’s knowledge of renewables isspotty and has not noticeably improved withincreasedmediacoverage.
1
Nevertheless,opin-ionpollsincreasinglyshowmajoritiesinfavorof deploying more renewables to cope withenvironmentalpollutionandclimatechange.Current renewables policies emphasizefourtypesofgeneration,whichdonotincludeall sources (such as hydroelectric power) thatinrealityrenewthemselves:
BiomassandWasteConversion
burnmateri-als to heat water and turn a turbine.Biomasscanbetheresidueofacommer-cial crop such as cornstalks or pressedsugar cane, or it can be remnants of treecutting and lumber manufacture. Wasteincludesdiscardedorganicmaterialsandsolids,aswellaslandfillgas.
Geothermal Energy
uses undergroundheatsources,primarilyvolcanicmagma,toheatwaterandproducesteam.Itgen-erally involves the sinking of pipes con-taining the water to be heated.
Wind Energy
uses a rotor and gearingmechanismtoturnaturbinewhenwindisblowingatit.
Solar Energy
is of two types.
Photovoltaic 
energy is created when sunlight strikes a surface coating and energizes it to reactwith a substrate to produce direct cur-rent.
Thermal 
energy can either be “pas-sive,”likewaterheatingwhenexposedtosunlight,or“active,”aswhenseveralmir-rors direct sunlight at a water containerthatwillboilandcreatesteam.
The Economics of Renewable Energy 
Figure1showsU.Sannualpowerproduc-tion in millions of kilowatt-hours (MKWh,also known as gigawatt-hours GWh) by typeof generator from 1990 to 2006. Over theperiod it grew by an average of 1.84 percent
2
The public’sknowledge of renewables isspotty and hasnot noticeably improved withincreased mediacoverage.
0500,0001,000,0001,500,0002,000,0002,500,0001990 1992 1994 1996 1998 2000 2002 2004 2006Coal PetroleumGas NucleaHydroelectric Renewable
Figure 1Electricity Generation by Source, 1990–2006
Date
    M    i    l    l    i   o   n   s   o    f    K    i    l   o   w   a    t    t  -    H   o   u   r   s    (    M    K    W    h   o   r    G    W    h    )
Source: U.S. Energy InformationAdministration,
Electric Power Monthly
, various issues.
 
peryear.
2
Becausegeneratorsofalltypeshavephysical life-spans of 20 or more years andcan often be repowered and retrofitted withpollution controls at reasonable cost, the rel-ativemagnitudesinthefigurewillpersistforsome time.Figures 2 and 3 show both constancy andchangeinpowerproductionbysource.Renew-ableshavebeenthebeneficiariesofbothprivateand public investments in research and pro-duction, and advocates claim that some of themarecompetitivewithconventionalgener-ators, at least in certain applications. Despitethe trends and claims, however, most utilitiesobtain negligible percentages of their powersuppliesfromrenewables.Moreover,theshareofproductionbyrenewableshaschangedlittle,movingfrom2.03percentin1990to2.15per-cent in 2005 and 2.39 percent in 2006.
3
That’sallthemoresurprisinggiventhatenvironmen-talregulationhasincreasedthecostofconven-tionalpowergeneration.Figures4and5showsubstantialchangesintherelativecontributionofvariousrenewables.Biomass(wasteandwood)conversionfellfrom72.5 percent to 57.5 percent of renewable pro-ductionbetween1991and2006.
4
Geothermalfell from 22.8 to 15.3 percent while solar re-mained a tiny (and declining) percentage. Thebiggest gainer was wind power, up from 4.2percentto26.7percent.Thecontinuinginsignificanceofrenewableenergyisstriking,particularlywhencomparedwith the range of government policies adopt-edtopromoteitoverthepastseveraldecades.Both federal and state governments havegranteddirectpaymentstoproducersorindi-rect transfers like the federal Production TaxCredit for power generated by wind, sunlightand biomass burning, currently inflation-adjustedto1.9centsperkilowatt-hour.
5
Otherindirect support has included tax-fundedresearchandpreferentialoperatingrules(suchas California’s) that prioritize renewable ener-gy dispatch even when more cost-effectivepower sources are available.
6
Finally, policiesdesigned to raise the cost of conventionally produced electricity can make renewables
3
The continuinginsignificanceof renewableenergy is striking,particularly whencompared withthe range of governmentpolicies adoptedto promote it.
Coal52.7%Gas12.5% Nuclear 19.1%Petroleum4.1%Hydroelectric9.5%Renewable2.0%
Figure 2Percentage of U.S. Electricity by Type of Generator, 1990
Source: U.S. Energy InformationAdministration,
Electric Power Monthly
, various issues.

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