RPS mandates raise electricity prices, harm employment and household income

That’s the aggregate finding of a newly released study of renewable portfolio standards mandates. My newsletter discusses the study, its finding regarding electricity prices and the critical importance of the cost caps in keeping electricity prices from skyrocketing under North Carolina’s RPS mandate.

It also discusses a flaw in the study causing it likely to overestimate North Carolina’s RPS mandate’s effect on North Carolinians’ employment and household incomes. Basically, after estimating the aggregate effect of state RPS mandates on long-term employment, incomes, etc., it uses those findings to project effects for the particular state (N.C.) without appearing to adjust for the state’s particular RPS mandate, which is less oppressive than many other states’. Its estimates for N.C. would therefore be weighted by other states’ stringency. While correct in the negative direction of the economic effects of our RPS mandate, it would overstate its total negative impact.

The study correctly warns about the inherent problems with the RPS cost caps. As I explain,

The price effects are being mitigated by the Cost Recovery Rider (CRR), which sets caps on how much utilities can charge to recoup their compliance costs from consumers. As the RPS requirements ramp up, however, they will crash into the CRR.

Policymakers will soon be forced to choose between freezing the RPS mandate or, much worse for consumers, raising the caps. Under this scenario, commercial electricity customers would face much higher rates, “posing a potential threat to the competitiveness of North Carolina’s commercial business base.” …

[In 2009, the Beacon Hill Institute of Suffolk University found that, in an RPS] scenario with the caps removed, the economic effects would be dramatically bad. Employment would be down 15,373 jobs by 2021 and real disposable income would be down (again, 2009 dollars) $271.1 million.

The prospect of policymakers getting rid of the cost caps to keep the RPS mandate hangs over North Carolina’s economy like a Sword of Damocles. At stake is not only the future competitiveness of North Carolina’s business climate, but also the quality of life for North Carolina’s poor.

Jon Sanders / Research Editor and Senior Fellow, Regulatory Studies

Jon Sanders studies regulatory policy, a veritable kudzu of invasive government and unintended consequences. As director of regulatory studies at the John Locke Foundation, Jo...