Economic harm from the wrong energy policies

Versions of the energy bill currently before the US Congress include some economically harmful proposals, including greenhouse gas emissions limits, renewable energy mandates and increased fuel economy standards. If enacted, these regulations would retard economic growth and reduce consumer choice, says National Centre for Policy Analysis Senior Fellow H. Sterling Burnett.

For example, a renewable energy portfolio mandate would require each energy provider to ensure that 10 or 20 percent of its delivered energy comes from a renewable energy source. Proponents argue that such a mandate would improve air quality, and reduce both the threat of global warming and U.S. dependence on foreign energy supplies.

However, neither wind nor solar power is economically competitive with fossil fuel. The costs for both solar power and wind power have fallen considerably, but even with generous subsidies:

New solar-power capacity is triple the cost of new natural gas-generated electricity and quadruple the cost of power bought on the open (spot) market.

New wind power capacity costs 50 to 100 percent more than new gas-generated electricity and spot-market power.

Due to the intermittency of their power source, both types of plants must be backed up by fossil fuel power plants – an expensive redundancy.

With even modest economic growth during the next 20 years, U.S. electricity demand could increase by more than 45 percent. Thus, requiring each utility's generating portfolio to include intermittent, high-cost wind and solar energy would condemn the U.S. to energy shortages and stagnant economic growth.

Among other proposals is increasing the Corporate Average Fuel Economy (CAFE) standard. However, raising CAFE standards to 40 mpg would reduce greenhouse gas emissions by less than half of 1 percent – a negligible amount.

Source: H. Sterling Burnett, Ph.D., Energy Bill Mistakes: Let's Call the Whole Thing Off, Brief Analysis No. 440, May 28, 2003, National Center for Policy Analysis.

For text http://www.ncpa.org/pub/ba/ba440/
For more on National Energy Policy http://www.ncpa.org/iss/ene/

FMF Policy Bulletins/3 June 2003