In October 2008, then-Gov. Jennifer Granholm signed into law the Clean, Renewable and Efficient Energy Act. The act imposed a “renewable energy standard” mandating that specific “renewable energy sources,” including wind, solar and biomass power, be used to generate 10 percent of retail electricity sales in Michigan by 2015. The law also mandates that lower but escalating percentages of retail electricity sales derive from renewable sources in 2012, 2013 and 2014.
The Beacon Hill Institute has used its State Tax Analysis Modeling Program — the STAMP® model — to estimate the economic effects of the RES mandates. In this study, we provide three estimates of the cost of the mandates — low, medium and high — using different cost and capacity growth projections for renewable and conventional electricity-generating technologies. In our calculations, we set aside electricity rate cost caps in the RES in order to determine the economic impact on Michigan if the RES standard is met in full.
Our findings suggest that in 2015, because of the 2008 Clean, Renewable and Efficient Energy Act:
- The cost of electricity for the state’s consumers will be $950 million higher than it would have been otherwise, within a range of $850 million to $1.04 billion; and
- Michigan’s electricity prices will be 7.9 percent higher than they would have been otherwise, within a range of 7.0 percent to 8.6 percent.
These increased energy prices will affect Michigan’s households, businesses and economy. In 2015, the RES will:
- Lower employment by 7,220 jobs, within a range of 6,430 to 7,870;
- Reduce disposable income by $600 million, within a range of $540 million to $660 million;
- Reduce net investment by $83 million, within a range of $74 million to $91 million;
- Increase the average household’s annual electricity bill by $70, within a range of $65 to $80;
- Increase the average commercial business’s annual electricity bill by $650, within a range of $580 to $710; and
- Increase the average industrial business’s annual electricity bill by $21,470, within a range of $19,120 to $23,410.
Now there is a proposal to increase the standard. In July 2012, petition signatures were submitted by supporters of a “Michigan Energy, Michigan Jobs” ballot initiative that would incorporate a similar renewable energy standard in the state constitution. This proposed standard, also known as “25 x 25,” would increase the renewable energy requirement to 25 percent of retail electricity sales by 2025. The proposal ostensibly prevents the cost of compliance with the RES from causing consumers’ electricity bills to increase more than 1 percent annually. The proposal has been placed on the Nov. 6, 2012, state general election ballot as Proposal 3.
Use of the STAMP® model indicates that the proposed “Michigan Energy, Michigan Jobs” mandate would lead to electricity prices and economic costs even higher than the current policy. Setting aside the cost cap in the proposed standard, we predict that in 2025 the ballot measure would, in comparison to having no RES at all:
- 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.
- Increase Michigan’s electricity prices by 16.2 percent, within a range of 15.1 percent to 16.9 percent.
- Lower employment by 10,540 jobs, within a range of 9,780 to 10,960 job losses;
- 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;
- Increase the average household‘s annual electricity bill by $180, within a range of $170 to $190;
- Increase the average commercial business’s annual electricity bill by $1,630, within a range of $1,520 to $1,700; and
- Increase the average industrial business’s annual electricity bill by $53,580, within a range of $49,730 to $55,680.
The cost caps included in the existing 10 percent RES and the proposed 25 percent RES could reduce the costs estimated above. It is not obvious, however, just how effective the caps would be in protecting Michigan’s economy. Electricity providers may be able to pass the costs of complying with the RES onto consumers in ways the caps do not prevent. If, on the other hand, the caps do protect ratepayers, the costs may end up being borne by the utilities — a dynamic that can also adversely affect the economy. And regardless of the caps, the cost of these renewable energy standards may be borne in part by residents not as ratepayers, but as taxpayers who must finance state and federal subsidies to renewable energy producers.
Citations provided in the main text.