October 12, 2010
Another Massive Energy Tax Looms on the HorizonBy Daren Bakst
After getting their hopes dashed on cap and trade legislation, many legislators are still determined to impose an energy tax on Americans.
Senator Bingaman (D-NM), along with 32 cosponsors, has introduced legislation that would create a 15-percent renewable energy standard. The RES comprises two distinct requirements.
First, electric utilities would be mandated to generate at least 11 percent of their electricity from renewable energy sources, such as solar and wind power. Secondly, four percent of this 15-percent requirement could be met by electric utilities achieving savings from energy efficiency measures.
All of these extra costs incurred by utilities would be passed on to customers in the form of higher electricity prices. These costs would be buried in electricity bills and therefore would be a hidden energy tax on customers.
Imagine if you ran a business making widgets, but nobody wanted to purchase them. The federal government then decides to provide special treatment to your business by giving you subsidies that far exceed any subsidies received by your competition.
That's what is being done with renewable energy sources such as solar and wind power. According to the United States Energy Information Administration (EIA), natural gas receives 25 cents per megawatt-hour in federal subsidies. Solar power receives 97 times that amount at $24.34 per megawatt-hour. Wind power receives 93 times that amount at $23.37 per megawatt-hour.
Now imagine that all of this special treatment still isn't enough for your business to succeed, so there's only one thing that can be done -- the federal government must force the public to buy your widgets.
A renewable energy standard is a mandate that would force the public to buy energy from high-cost and unreliable sources because the public (through utility companies) won't buy energy from those sources otherwise. It would be by far largest subsidy that could be provided to renewable energy.
Between the high cost of renewable energy and its unreliable nature, there're good reasons why the public won't buy renewable energy. Using EIA data, new solar power is nearly five times more expensive than a new natural gas plant. A new onshore wind power plant is about 70 percent more expensive than a new natural gas plant.
The wind doesn't blow all the time, and the sun doesn't always shine. This makes both sources of energy extremely unreliable, which is the exact opposite of what is necessary to maintain an electricity grid. To address these reliability problems, conventional sources of power such as natural gas are required to serve as backup generation.
Coal, natural gas, and nuclear power will be required no matter how much we waste on solar and wind power. Both sources are so unreliable that they are not a legitimate source of baseload generation (the electricity needed to meet the minimum level of demand).
They also can't be used to meet periods of peak demand, when demand for electricity is at its highest. During those times, grid managers are required to call upon sources of electricity when needed, which can't be done with wind and solar because the wind doesn't blow and the sun doesn't shine on command.
Although this is a point that seems to get lost by those concerned with energy independence, renewable electricity sources also aren't ways to reduce our dependence on foreign oil. In 2008, electricity generation accounted for only about 1 percent of all petroleum consumption in the United States.
Despite these problems with renewable energy, some in Congress want to impose an energy tax on Americans to appease environmental pressure groups and reward the large special interests that have a significant amount of money invested in these technologies.
Proponents of this energy tax also are disregarding state rights, similar to what happened with the health care bill. Many states already have renewable energy mandates, and those that don't have a mandate recognize that they don't have the same types of renewable energy resources as other states. A one-size-fits all approach ignores the unique resources and needs of individual states.
Imposing a massive energy tax isn't exactly a great way to stimulate the economy. Energy is an input into every good or service -- if energy prices increase, productivity will shrink, leading to even greater job losses and less disposable income.
Maybe renewable energy sources are going to play a role in the future, although after decades of massive subsidies, it seems unlikely. This doesn't mean, however, that Congress should mandate that individuals buy something they don't want, as it did with health care.
It's bad enough that Congress wants to impose a renewable energy tax on Americans -- it is far worse that they want to tell us how to spend our money. Congress should reject this proposed new tax and instead allow utility companies to generate electricity through the most affordable and reliable sources of energy.
Daren Bakst, J.D., LL.M. is Director of Legal and Regulatory Studies at the John Locke Foundation, a North Carolina-based think-tank.