Quick: Make a list of America's top 10 problems. Did "electricity supply" make your tally?
I thought not.
But last week our President elevated an evidently problematic electricity regime to top issue-status, calling for more regulation and higher electricity prices in his State of the Union address:
Now, clean energy breakthroughs will only translate into clean energy jobs if businesses know there will be a market for what they’re selling. So...tonight, I challenge you to join me in setting a new goal: By 2035, 80 percent of America’s electricity will come from clean energy sources.
Some folks want wind and solar. Others want nuclear, clean coal and natural gas. To meet this goal, we will need them all -- and I urge Democrats and Republicans to work together to make it happen.
The President's goal is actually a dramatic departure from our current electrical generation profile, as well as from where we seem to be headed on a status-quo basis:
|U.S. Electricity Generation by Source|
|Est cost (cents/kWh)||9.8||9.0||?|
Rates of change in the substitution of fuels for power generation typically occur only very slowly, in part due to the very long life of generating assets. The degree of change proposed by Obama -- 26 share points -- counts as absolutely enormous.
The EIA's current baseline projection to 2035 already assumes that 23% of new generation will come from renewables (excluding hydro, which is currently the biggest component of "renewable."). But because the base turns over so slowly, renewables are only expected to gain four share points in total.
Presumably the President will follow his call for a "new goal" with a call for supporting regulations. Regulations to force utilities to use more of preferred energy sources are know as Renewable Portfolio Standards (RPS). Democrats, after face-planting in their attempt to institute cap-and-trade legislation, have been circling around the idea of a federal RPS rules as a fallback policy. RPS set minimum thresholds for utilities, in terms of share of generation and time frames. For example, a standard may mandate the sourcing of 20% of energy from wind power by 2025.
These minimum purchase requirements effectively create subsidies for uncompetetive technologies. Utilities must nevertheless purchase them, at above-market prices, if a source is needed to meet a target standard. These implicit subsidies are funded by higher prices passed on to the end customers.
RPS regimes already exist in about half the states -- typically blue states with busy-body legislatures, uncompetitive business environments and union-shop rules. Such as Massachusetts.
The effect of an Obama federal RPS standard (or will it be "Clean Portfolio Standard?") will be to replace low-cost coal with preferred, higher cost sources. Electricity prices, which EIA currently projects to decline over the next 25 years in its baseline, would instead inevitably rise substantially.
Well, OK, but the President defends these new regs and higher costs with a call to address Global Warming, right?
The President defends his program with reference to competitiveness, jobs, productivity, and innovation!
So, yes, the world has changed. The competition for jobs is real…No workers are more productive than ours. We know what it takes to compete for the jobs and industries of our time. We need to out-innovate, out-educate, and out-build the rest of the world. We have to make America the best place on Earth to do business. We need to take responsibility for our deficit and reform our government. That’s how our people will prosper. That’s how we’ll win the future. .. Our free enterprise system is what drives innovation…We’ll invest in biomedical research, information technology, and especially clean energy technology -- an investment that will strengthen our security, protect our planet, and create countless new jobs for our people.
Of course the President has it all backwards. We need free enterprise and innovation to drive productivity, which creates wealth, jobs, and competitiveness. You don't get these by instituting subsidies, higher costs, more regulations, and corporate welfare capitalism; this policy just brings reduced productivity and competitiveness. It is a net-job loser.
If regulating markets shares could "create jobs" then why not just mandate that Verizon make Microsoft Phone 7 50% of its phone sales?
We don't need the government to induce "clean energy" to improve our competitiveness. We need the market to innovate cheap energy.
The President also proposes continued and enhanced funding to support basic research in energy development. While the optimal amount and source of such funding merits debate, few would suggest that government does not offer a useful role here. I wouldn't.
But a new federal regulatory regime to make us less competitive?