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The High Cost of Regulation

Remember when President Obama said that his policies would cause the cost of electricity to skyrocket? Well, the cost has skyrocketed, but not only because of Obama. In February, Robert Bryce of the Manhattan Institute released a study of the cost of renewable energy mandates. In most states, regulatory authorities have required utilities to obtain a specified portion of their power from renewable sources–wind, solar, and so on. Those energy sources are nowhere near as efficient as coal and natural gas, which means they cost far more per kilowatt hour. But the utility has to buy that energy by law, and it passes the higher cost on to its ratepayers. Generally, the ratepayers–i.e., all of us–have no idea that they are paying extra to subsidize “green” fantasies:


[T]wenty-nine states (and the District of Columbia and Puerto Rico) have required utility companies to deliver specified minimum amounts of electricity from “renewable” sources, including wind and solar power. California recently adopted the most stringent of these so-called renewable portfolio standards (RPS), requiring 33 percent of its electricity to be renewable by 2020. …

But this patchwork of state rules—which now affects the electricity bills of about two-thirds of the U.S. population as well as countless businesses and industrial users—has sprung up in recent years without the benefit of the states fully calculating their costs. …

[W]e have compared the costs of electricity in RPS [renewable portfolio standards] and non-RPS states, using price information from the EIA. Our analysis has revealed a pattern of mostly higher costs in states with RPS mandates:

* In 2010, the average price of residential electricity in RPS states was 31.9 percent higher than it was in non-RPS states. Commercial electricity rates were 27.4 percent higher, and industrial rates were 30.7 percent higher.

That represents an enormous amount of economic waste. Bryce notes that the federal government bears responsibility for skyrocketing rates, too:

To be sure, the mandates aren’t the only reason that electricity costs are rising—increased regulation of coal-fired power plants is also a major factor….

But that increased cost is on top of the 32% difference between states with “green” mandates and those without. And the future, under the present administration, only gets bleaker. Remember candidate Obama’s arrogant pronouncement that under his regime, people could still build coal-fired plants, but they would go broke because of the taxes and regulations he would heap on them? Bryce observes:

Electricity providers are replacing much of their coalfired generation with natural gas units because the EPA is pushing regulations like the Cross-State Air Pollution Rule and the Maximum Achievable Control Technology requirement. In addition, federal authorities are promulgating new rules on mercury emissions, coal ash, urban air quality, and cooling water. The EPA has estimated that the new pollution-control equipment will cost utilities $10.6 billion by 2016.

Taken together, all the regulations could result in 80,000 megawatts of coal-fired capacity, or about 7 percent of all generating capacity in the U.S., to be shuttered. In May 2011, a study by NERA Economic Consulting, which was commissioned by several coal-dependent utilities, estimated that if the federal rules are implemented as scheduled, “average U.S. retail electricity prices in 2016 would increase by about 12 percent.”

But consumers who have less money for groceries and gasoline because they are spending more on electricity tend to blame the power companies, not the government. That is why politicians love mandates.

It might make you feel better to know that “green” energy is not only being mandated, it is also being subsidized. (Mandates are, of course, an especially pernicious form of subsidy.) That means, in the Obama era of corporate cronyism, that your tax dollars are enriching billionaires like Elon Musk and Vinod Khosla. Paul Chesser writes:

The three top U.S. tycoons on Forbes’s “Green” billionaires list have received billions of dollars in taxpayer subsidies for their clean technology companies, after they spent hundreds of thousands of dollars for political campaigns and lobbying.

Two of the moguls, Elon Musk and Vinod Khosla (in photo), are technology pioneers based in California with net worths of $2 billion and $1.3 billion, respectively.

I think it is great when a businessman becomes a billionaire by inventing or producing a product that people want, and for which they are willing to pay. It is not great when a businessman becomes a billionaire by lobbying his allies in government to force people to buy a product which is vastly overpriced, and which they would never buy voluntarily. That is what is happening with “green” energy. It is a scandal, but one on which your local newspaper has no interest in reporting.

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