Sunday, August 3, 2003

A few days ago, the Senate passed an energy bill that is 5 parts corporate welfare to 1 part Soviet-style central planning. An example of the latter aspect is a provision ordering power companies to get 10 percent of their electricity from renewable fuels. While environmentalists are giddy over it, they should think again — a renewable energy mandate will harm, not help, both the economy and the environment.

Here’s the basic problem: Renewable energy is simply far more expensive than energy produced from natural gas or coal. If it were otherwise, government would not have to contemplate forcing companies to use renewables. How much more expensive? Well, it depends on the specific fuel and the particular facility, but the cheapest sources of renewable energy — biomass (wood, plant fiber, and the like) and wind — cost almost twice as much on average as gas or coal-fired electricity.

Even the blizzard of federal and state tax subsidies and preferences already showered on renewable fuels — subsidies that, on average, reduce costs about 50 percent — have been unable to close the gap. If we take hydropower out of the mix, renewable energy generates about 2.2 percent of the electricity humming along the national grid. Wind power — the darling of the left — generates all of 0.13 percent of the electricity on the nation’s grid, and solar is responsible for only 0.02 percent.

While proponents of renewable energy blame subsidies for competing fuels for their tiny market share, the charge falls flat. After studying the matter, the U.S. General Accounting Office found that fossil fuel subsidies are “too small to have a significant effect on the overall level of energy prices and consumption in the United States.”

What about this exponential increase in renewable energy, particularly wind power, we keep hearing about? Well, it doesn’t take much to show huge increases in market share when current production is so infinitesimal. But the main reason for the growth in renewables isn’t improving economics, it’s increasingly bossy politicians. Of the 5,356 megawatts of renewable energy production currently on the drawing board, only 291 megawatts would be generated voluntarily. The remainder is being built because state legislators have ordered it to be built.

Tired of piling subsidy upon subsidy with still nothing to show for it, the Senate take the states’ “build-it-or-else” approach nationwide by requiring power companies to use renewable energy for 10 percent of their electricity by 2020. Proponents argue (correctly) that these production orders would only increase the price of power by a few percentage points — so why not put the pedal to the metal?

If the prospect of larger electricity bills isn’t a good enough reason to oppose this form of corporate welfare, how about the virtual guarantee that these provisions would worsen environmental quality?

The root of the problem: The cheapest form of renewable energy today is biomass. The Energy Information Administration (a respected analytic arm of the Energy Department) projects about 80 percent of the renewable energy produced to comply with a 10 percent renewable energy mandate would come from biomass fed into existing coal plants.

A recent comprehensive review of the literature undertaken by Thomas Sundqvist and Patrik Soderholm in the Journal of Energy Literature suggests the scope of the possible environmental damage. The median finding of 22 separate studies concerning the environmental effect of biomass fuels is that they impose about 7 cents of environmental damage for every kilowatt of energy produced — much greater than the environmental damage caused by nuclear power (about 4 cents), about the same as the environmental damage caused by natural gas-fired electricity, and only slightly less than the environmental damage caused by coal-fired electricity (about 9 cents).

Accordingly, a renewable fuel mandate will worsen the environment because biomass co-fired with coal is clearly more environmentally problematic than is natural gas, the fuel that is currently attracting about 98 percent of the investment dollars for new electricity generation and the fuel most likely to be displaced by a federally imposed renewable energy mandate.

If the Senate were serious about promoting environmentally friendly energy technologies, it would simply impose a tax to reflect the unpriced environmental damages done by various fuels and leave decisions to the marketplace thereafter. But simply ordering the electricity sector around as if the Senate were the Politburo and private utilities were arms of the state will benefit neither the economy nor the environment.

Jerry Taylor is director of natural resource studies at the Cato Institute.

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