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The Agenda

NRO’s domestic-policy blog, by Reihan Salam.

A Stealth Carbon Tax?



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Robert Bryce has a fascinating new report on state-level renewable energy mandates:

Motivated by a desire to reduce carbon emissions, and in the absence of federal action to do so, 29 states (and the District of Columbia and Puerto Rico) have required utility companies to deliver specified minimum amounts of electricity from “renewable” sources, including wind and solar power. California recently adopted the most stringent of these so-called renewable portfolio standards (RPS), requiring 33 percent of its electricity to be renewable by 2020. 

These policies have succeeded in part because their proponents argued that the impact on electricity prices would be negligible. That does not appear to have been the case.

There is growing evidence that the costs may be too high—that the price tag for purchasing renewable energy, and for building new transmission lines to deliver it, may not only outweigh any environmental benefits but may also be detrimental to the economy, costing jobs rather than adding them.

The mandates amount to a “back-end way to put a price on carbon,” says one former federal regulator. Put another way, the higher cost of electricity is essentially a de facto carbon-reduction tax, one that is putting a strain on a struggling economy and is falling most heavily, in the way that regressive taxes do, on the least well-off among residential users.

To be sure, the mandates aren’t the only reason that electricity costs are rising—increased regulation of coal-fired power plants is also a major factor—and it is difficult to isolate the cost of the renewable mandates without rigorous cost-benefit analysis by the states.

That said, our analysis of available data has revealed a pattern of starkly higher rates in most states with RPS mandates compared with those without mandates. The gap is particularly striking in coal-dependent states—seven such states with RPS mandates saw their rates soar by an average of 54.2 percent between 2001 and 2010, more than twice the average increase experienced by seven other coal-dependent states without mandates.

An advocate of carbon taxes might see this picture somewhat differently. That is, the problem is the patchwork nature of RPS mandates, not the fact that carbon-intensive electrical generation has become more expensive as such. A carbon tax regime that preempted state efforts might facilitate the exploitation of low-cost opportunities to reduce carbon intensity, thus minimizing disruptive price increases, etc. Limiting the scope of these efforts to state-level electricity markets does seem quite inefficient. One potential rejoinder to this line of thinking is that it is hard to imagine a truly “clean” carbon tax regime that is not badly undermined by rent-seeking efforts. 



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