Gov. Brian Sandoval’s recent decision to veto an increase in the state’s renewable portfolio standard is not just a win for the state’s economy, but for the environment, too.
Renewable portfolio standards require utilities to buy a percentage of the electricity they provide from qualifying sources such as wind and solar. It’s a policy that sounds straightforward, but it has several unintended consequences that work against its environmental goals.
Empirical investigations of the economic effects of portfolio standards tend to find that they increase electricity prices. A professor at the University of Nevada, Las Vegas, for example, found that utilities subject to these mandates charge electricity rates 3 percent higher than those not subject to mandates, on average.
Another study found a slightly higher 5 percent increase in state electricity rates. This one went further, expressing concerns about how higher electricity prices may deter investment in states with renewable mandates and cautions policymakers to carefully weigh these costs against potential benefits. Higher electricity prices will, after all, have ramifications far beyond a consumer’s electricity bill. Rising electricity prices mean higher costs for producing other goods — and, ultimately, higher prices everywhere.
But renewable portfolio standards don’t just have economic effects. They’re meant to clean up the environment, but are rarely well-designed to do so. Standards often include energy sources in debatable standing with environmentalists. Biomass, for example, is looked down on by several environmental groups. Prominent experts in the field, such as Stanford’s Mark Jacobson, dislike biomass because it relies on combustion and thus releases carbon. The Sierra Club accuses some forms of biomass of masquerading as clean energy sources while actually having higher carbon content than coal.
But often, it’s not what a mandate includes, but what it excludes that matters. States have consistently opted to exclude low-carbon sources that would help prevent climate change. Large hydroelectric generation facilities and nuclear plants aren’t included even though they provide many of the same environmental benefits as included sources. Hydro and nuclear have the added advantage of solving the intermittent problem of wind and solar generation, since engineers can turn them off and on when power is needed. Without serious advances in energy storage, consistency and reliability is a vital need many renewable energy sources can’t meet.
Another problem besides ignoring viable low-carbon options is the political intrigue behind these requirements. Instead of prudent environmentalism deciding what is included, it is too often decided by politics. For example, states sometimes provide carve-outs for politically-important interest groups. Pennsylvania is perhaps the most absurd offender since it includes types of coal byproducts such as waste coal in its portfolio demands. Some environmental activists believe waste coal pollutes even more than burning coal.
The economic evidence against renewable portfolio standards is mounting, but the environmental case for either doing away with them or improving them is also worth discussing. Policymakers should think carefully about how higher electricity prices may impact their state’s economies. More importantly, however, they should be critical of the ways they design their policies. Including dirty energy sources in a supposedly green bill will do little to fix today’s pressing environmental problems.
Josh T. Smith is a master’s student in economics at Utah State where he specializes in public choice theory and environmental policy.