FORBES: A standard for 'sticker shock'

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By Steve Forbes

COMMENTARY:

Clean energy and federal standards are hot topics in the nation's capital these days. One issue tossed around by policy wonks is the possibility of creating a national standard for how much electricity must be obtained from renewable resources.

However, any consideration of a federal renewable electricity standard (RES) must start with a basic truth about energy production and usage: Markets talk; mandates shock.

Take a look at the federal mandate to add ethanol to gasoline. Most people (except those in Congress) agree it helped lead to last year's global food-price explosion while also degrading the environment. Not to mention that it drove overall energy prices higher because of the additive's relative inefficiency.

Contrast that mandate to the market's response last year to high oil prices. Energy use dropped dramatically - consumers drove about 3.6 percent less last year in the United States alone - helping push down oil and natural gas prices, and thereby emissions.

But as shocking as most mandates are, few could produce more of a jolt to consumers, businesses and entire regions of our country - while delivering fewer of the intended benefits - than the renewable-electricity standards being considered in Congress.

Proposed bills would require generation of 20 percent to 25 percent of electric power from renewable sources by dates ranging from 2020 to 2025. Their problems begin with how to define a renewable source.

Most proposed mandates omit existing production of large-scale hydroelectric power, nuclear power and clean coal. These resources account for 6 percent, 20 percent and 50 percent, respectfully, of U.S. electricity generation. Leaving out these more practical sources in the nation's energy plans means RES targets could be met only at extraordinary cost - if at all.

Among the renewable sources that are considered by proposed mandates, biomass doesn't transport well, and solar panels are more practical for small-scale, home-based use because of space requirements.

In fact, the most practical use of solar energy is the old-fashioned clothesline, which could displace up to 6 percent of power use.

That leaves wind, which provides only about 1 percent of power nationwide. Because the most practically harnessed wind energy is concentrated in the West and Great Plains, it would have to be transmitted over long distances.

Moreover, wind and solar power are highly variable - the wind doesn't always blow, and the sun doesn't always shine - and their energy cannot be stored. This means states would have to back up some of their renewable power with conventional sources (read: coal, nuclear, natural gas).

The reality is that the costs and unreliability of transporting renewable energy to states that have less access to wind and solar power, in particular the Southeast, would make it cheaper to buy credits from states with renewable resources. Either way - purchasing the credits or buying power transmitted from other regions - a federal RES would amount to a massive wealth transfer from some of America's poorest regions to some of its best-off.

That's where the mandated shock and real pain comes in for consumers and businesses in those regions. Industry estimates find that under a federal standard ranging from 20 percent to 25 percent, consumers in 22 states, accounting for 70 percent of all users nationwide, would see their electric bills increase by up to 15 percent.

Meanwhile, price increases already are showing up in the 28 states that have enacted their own renewable standards.

Just as with the ethanol mandate, high costs associated with renewable standards won't pay off in greater energy security or environmental benefits. The three largest sources of U.S. power generation - coal, natural gas and nuclear - are largely domestic. Studies have suggested the high costs of RES mandates, ironically, would force utilities to turn to low-cost, high-carbon coal for more of the remainder of their power generation, potentially offsetting any environmental benefit.

We need to have a wide mix of domestic fuels to ensure reliable power in this country. So efforts to help achieve that goal are admirable. However, in this current economic climate, it is hard to see real benefits in pushing for an unworkable one-size-fits-all federal mandate for renewables as part of our large-scale power generation. The problems associated with a mandatory federal RES are just too numerous to outweigh any potential value. In other words, too much pain, no gain.

Steve Forbes is president and chief executive officer of Forbes Inc. and editor in chief of Forbes Magazine.