RPS: RIP

The NCPA has argued repeatedly that the best energy policy for the economy, consumers, government revenues and the environment would be an energy neutral policy, under which no energy source received subsidies, government support or special encouragement.  Under such a policy, all energy sources would compete on an equal footing, with the result that inefficient, unreliable and non-cost-effective energy sources would fade from the marketplace until such a time as they or other, as yet unthought-of or undeveloped energy technologies, can command consumer demand.

It seems lawmakers in both state and federal legislatures are finally coming to the same conclusion.  At the Federal level Representative Mike Pompeo from Kansas introduced a bill HR 1569 would end all tax credits for all energy companies.  It gets rid of every single tax credit in the entire Internal Revenue Code related to energy including temporary subsidies, including renewable and efficiency tax credits as well as credits available to — but rarely used by — oil and gas producers.  If this becomes law, it would be a good start.

However, an even worse form of subsidy is common in many states: a Renewable Portfolio or Renewable Energy Standard.  An RPS requires electric utilities to ensure that a legislatively establish amount of the energy they deliver comes from politically favored sources (usually wind and solar) energy.   As I argued in a study examining the prospects of solar power becoming competitive, Renewable portfolio standards are more powerful than subsidies. Subsidies only encourage utilities, firms and individuals to adopt, develop or use renewable power, but portfolio standards require electric suppliers to purchase (and thus consumers to pay for) renewable, regardless of the cost.

Fortunately, for the sake of energy freedom, the federal government has failed to enact a national standard (thus far) and the states seem to be beginning to learn from their mistakes.  For instance, in North Carolina House subcommittee passed a bill keep the state’s current Renewable Energy Portfolio Standards on the books through 2018 but cap the requirement at 6 percent of overall energy production.  While not an outright repeal, it’s another good start.  Several free market think tanks are working to reign in or repeal renewable portfolio standards and their efforts deserve rate payers’ thanks in those states foolish enough to enact RPS’s.

Comments (11)

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  1. Paket says:

    Fascinating post, I am all for energy freedom, but at the same time I am also for diversifying our source of energy. What kind of policies will it take to encourage innovation in our energy source while at the same time not messing up the traditional energy market.

  2. Kumar says:

    If green energy, which is still infantile compared to traditional energy industries, isn’t provided some kind of support, how will they be able to make big innovation?

  3. Sandeep says:

    Kumar I think you are alluding to the “infant industry” argument, most past cases of this seems to show that it doesn’t work. Protectionism in most cases don’t work.

  4. Desai says:

    When one is trying to engineer something new in a field as complicated as energy, they need to be able to do research into the long term, with little possibility of immediate success, this aspect of the journey is important and need to be supported. And so protecting and subsidizing their experiment is important.

  5. Vikram says:

    @ Desai

    Yes, I understand where you are coming from, but at the same time look at the information technology field, it isn’t like Steve Jobs needed support from the government to innovate something new that challenged the likes of Microsoft and IBM.

  6. Raj Khan says:

    I think every nation and state should be given the freedom in how they acquire energy to develop their economy. Having a nationalized standard is the wrong way to go. I would even go as far as saying that a global standard might be even worse, hint to Kyoto, they suck!

  7. Roger Depaz says:

    I think that nations should rely on private sector innovation in regards to energy production. For the countries that have different types of energy resources, such as natural gas, coal, etc, companies should compete to acquire the resources under ethical standards and supply them based on demand, which ought to bring prices down. For countries that are energy dependent on others, I feel that companies from other countries would compete in the trade market so that the country in need benefits from lower prices as well.

  8. Jordan says:

    Hopefully the renewable energy industry doesn’t end up going the same route as auto or sugar. Giant federally subsidized rackets area pretty much the devil.

  9. Roger Depaz says:

    @ Desai: We have patent laws in this country and that should be enough to protect some sort of innovation within the energy field. Companies find ways to raise capital for research without the need of subsidies and as taxpayers, we shouldn’t be supporting protectionist policies that end up raising prices and undermining innovation through competition — including competition coming from abroad. If renewable sources are found more effective, they would find their way through the market with the increase in demand and wouldn’t need subsidies. Let’s let the innovators innovate freely and consumers consume through a proper supply and demand principle.

  10. Ron Smith says:

    We have and are witnessing what agricultural subsidies are doing in regards to price distortions that hurt domestic consumers and hurting poor farmers in developing countries stay in abject poverty. The energy industry is no different when the agenda is primarily of dominance over weaker economies at the expense of other suffering.

  11. H. James Prince says:

    I find it sickly humourous that ‘green’ energy always ends up costing more ‘green’ out of my pocket.

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