President Biden’s ‘Green Recovery’ plans would by themselves reduce national incomes by 2–3 percent.
President Biden’s ‘Green Recovery’ plans would by themselves reduce national incomes by 2–3 percent.
S hifting energy use toward renewable sources imposes significant costs on consumers, who, given the choice, overwhelmingly opt for cheaper and more reliable fossil-fuel sources. Electrification of cars and appliances also creates its own costs in the form of additional electricity generation and the building of charging infrastructure. Each policy magnifies the cost of the other.
To paraphrase outgoing World Bank president David Malpass, we should not be promoting EVs where there is insufficient “E” to power the “V.” He was referring to developing countries, but even in the United States, electricity supplies are barely keeping up with demand. On one hand, we have many new policies as well as technological change encouraging electrification. Both electric-car manufacturers and electric-car consumers are heavily subsidized. Several localities are banning gas stoves — cook with electricity, they say — while others intend to do so in the near future.
Without a large reduction in miles driven, the electrification of all, or even most, passenger vehicles would increase the per-capita demand for electric power by about 25 percent, while more than 70 percent of the baseline electricity generation (i.e., using fossil fuels) would be retired, and another 11 percent (nuclear) would not expand. To put just the 25 percent in perspective: that is the amount of the cumulative increase in electricity generation per person since 1979, which is a period over which nuclear and natural-gas generation tripled.
Another part of the proposal is to reduce the supplies of electricity that come from fossil fuels, which have been about 70 percent of our overall supply — in addition to nuclear and renewables. Achieving this objective would require some combination of less electricity usage or putting enough additional resources into renewable energy to make up the difference.
It’s one thing to try one of these policies, but President Biden is pledging to do both. Cutting out fossil-fuel generation is even more expensive when coupled with policies that increase electricity demand. Increasing electricity demand costs even more when coupled with policies that reduce supply.
In a new paper with Timothy Fitzgerald, we estimate that phasing out enough fossil fuels to make electricity generation 80 percent renewable would cost $144 billion annually to create an additional 2.1 billion megawatt-hours of renewable capacity. Some combination of consumers and government programs would pay almost $200 billion for this, while several of the renewables producers would see greater profits.
Meanwhile, an additional 1 billion megawatt hours would be necessary to power all of the new electric cars, stoves, etc. We estimate that this would cost another $250 billion annually. That brings the total cost of this “Green New Deal” to almost 2 percent of GDP. The costs would be disproportionately borne by Texas, North Dakota, and Pennsylvania, where much fossil-fuel wealth would be stranded as policies prevent them from making it to market.
While these renewable-energy plans are touted as promoting economic recovery from the pandemic recession, these findings suggest that the policies slow the recovery. If federal policies forge ahead without additional reliance on market mechanisms, California will not be the only state where EV owners will occasionally be unable to power their vehicles.