Prop 3’s Renewable Energy Standard Could Cost Michigan 10,540 Jobs, According to New Mackinac Center-Beacon Hill Institute Study

Study considers investment and costs of the ‘25 x 25’ proposal; effect of current 10 percent standard also estimated

For Immediate Release
Friday, Sept. 21, 2012

Contact: Paul Bachman
Director of Research
The Beacon Hill Institute
617-573-8750
or
Ted O’Neil
Media Relations Manager
Mackinac Center for Public Policy
989-631-0900

MIDLAND — If Proposal 3 passes, Michigan would likely have 10,540 fewer jobs in 2025, according to a new Mackinac Center-Beacon Hill Institute study.

The study’s authors, economists Dr. David G. Tuerck, Paul Bachman and Michael Head of The Beacon Hill Institute, used an econometric model to evaluate the 25 percent renewable energy standard for electricity sales required under Prop 3. The authors considered the potential economic benefits and economic costs of such a standard and compared the result to a baseline economic projection absent the mandate.

“The standard would require new investment in the state, but the investment would be in renewable energy sources, which are generally more expensive and less reliable,” said Dr. Tuerck. “We find that meeting a 25 percent standard would, on balance, cost the average Michigan residential ratepayer between $170 and $190 in 2025, when the mandate takes full effect, and cost the average industrial business ratepayer between $49,730 and $55,680. It’s possible the ‘cost cap’ that’s included in Proposal 3 could mitigate these costs somewhat, but we expect the cap to have little to no effect.”

The authors also estimate a 25 percent standard would:

  • Impose net costs on the Michigan economy of $2.55 billion, between a low estimate of $2.37 billion and a high estimate of $2.65 billion.
  • Lower disposable income by $1.42 billion, within a range of $1.32 billion to $1.47 billion;
  • Reduce net investment by $147 million, within a range of $136 million to $153 million.

“Our study also indicates that even if voters reject Proposal 3, Michigan residents will still bear some of these costs,” said Dr. Tuerck. “Michigan already has a 10 percent renewable energy standard in effect, and our economic modeling indicates that it, too, has substantial net economic costs for the state, not benefits.”

The 10 percent renewable energy requirement was passed by the Michigan Legislature in Public Act 295 of 2008.  The authors provide estimates of the economic costs of complying with the standard in 2015, when the full 10 percent standard is scheduled to be enforced, and in 2025, when the full 25 percent requirement in Prop 3 would first be enforced.

The authors note in the study that because renewable energy sources like wind tend to be intermittent, conventional energy sources must be kept on standby, adding to the cost of the standards and reducing any improvement in emission levels. The authors also observe that by driving up the costs of energy production, state renewable energy standards are likely to discourage business activity in Michigan and encourage it in lower-cost jurisdictions. In that case, emissions would tend to be shifted elsewhere, not decreased.

The authors used a well-known economic model known as the STAMP® model in their estimates. They are affiliated with The Beacon Hill Institute, the research arm of the economics department at Suffolk University in Boston. The authors have produced studies of renewable energy standards in several other states.

For more information on Proposal 3 and other proposals on the Nov. 6 ballot, see http://www.MIballot2012.org.
 

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