Proposal 3, the “25 x 25” renewable energy initiative that would require 25 percent of electricity sales in Michigan come from renewable sources by 2025, will cost taxpayers $2.55 billion in higher electrical bills and cost the state economy 10,540 jobs when fully implemented. Despite the investment the proposal will require, mandating less cost-efficient and less reliable electricity will hurt the state, leading to lower total investment.
The economic analysis, from a new study by the Mackinac Center and The Beacon Hill Institute, accounts for both the increased investment that would be necessary to meet the higher renewable energy standard and the increased expense to consumers. When both are considered, the direction is decidedly negative.
We used estimates on the costs of renewable energy power generators from the U.S. Energy Information Administration. While a number of renewable energy sources — such as wind and solar — do not require ongoing expenses for fuel like coal and natural gas facilities, there are substantial costs to building the facilities in addition to the ongoing operation and maintenance costs. The increased capital costs means renewable energy facilities produce less energy for the investment.
The initiative’s proponents, however, argue that this increased investment will add jobs — or as one study put it, “job-years” — to the state’s workforce. But these estimates are wrong for a simple reason: they consider all of the benefits but none of the costs. If the stork dropped billions of dollars over the state to build windmills, then there may be some economic benefits. But as it is, the costs for these renewable energy plants will be paid by ratepayers in higher costs or will be paid by taxpayers in subsidies.
More simply put: renewable energy is not a free lunch.
It is possible that the cost cap contained in the proposal can mitigate some of the mandate’s harm. This cap, however, it is unlikely to be effective. It already contains a built-in work-around through its slippery stipulation that the cap only applies to the cost of “compliance.” Moreover, subsidies for renewable energy (such as the 30 percent federal production credit for wind farms) would transfer the costs from ratepayers to taxpayers, taking money out of one pocket while capping it in another.
The economic benefits of Proposal 3 are highly suspect and so are the environmental benefits. As prices increase in order to meet the costs of this mandate, it may very well be that emissions in the state decrease as well. But given the mobile, competitive and dynamic American economy, these emissions are likely to happen in other states instead of in Michigan, displacing economic activity and the associated emissions instead of mitigating it.
Proposal 3 will not improve the economy when you account for its costs. Neither will it improve the environment when you account for the fact that businesses will expand or locate in other states if faced with higher electricity rates in Michigan.
James M. Hohman is assistant director of fiscal policy for the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Michael Head is a research economist at The Beacon Hill Institute for Public Policy Research at Suffolk University in Boston. Permission to reprint in whole or in part is hereby granted, provided that the authors and the Center are properly cited.