Be honest about renewables’ cost

If you are concerned about climate change, you are likely enthusiastic about renewable fuels, such as solar and wind, and about laws that require their use. For example, the Green New Deal calls for “meeting 100% of the power demand in the United States through clean, renewable, and zero-emission energy sources.”

Unfortunately, new research shows that renewable-fuel mandates are an unusually expensive way to reduce greenhouse gas emissions. The expense comes in the form of increased electricity prices, which are a particular problem for consumers with low incomes.

A strong majority of states now have “renewable-portfolio standards,” which require that a specified percentage of the electricity supply must come from renewables. In California, the 2030 target is 60%. In New York, it is 50%.

Some states have lower targets, but even so the standards are expected to produce significant increases in the use of renewable energy – and to move states in the direction of becoming carbon-free.

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To evaluate renewable-portfolio standards, it is essential to answer two critical questions. First, how much do they do to reduce greenhouse gas emissions? Second, how much do they cost?

To some people, it is tempting not to worry much about the second question, on the assumption that any costs will be borne by some abstraction called “companies.” But that’s unrealistic. Costs are often passed on to consumers. High costs might also reduce employment.

Costs are often passed on to consumers. High costs might also reduce employment.

Michael Greenstone and Ishan Nath of the University of Chicago have done the first careful study of the actual effects of renewable-portfolio standards, focused on the two critical questions. They study outcomes in the 29 states that have adopted the standards, comparing them with states that did not.

The good news is that such standards really work. The environmental benefits are large. Over their first seven years, such standards produced large cuts in carbon emissions – perhaps as much as 659 million metric tons.

At the same time, the standards turn out to be quite expensive. In their first seven years, they increased average electricity prices by about 11% in the 29 adopting states. [The residential sector experienced the largest increase.] In those years, the cumulative costs were about $125 billion.

Is that cost worthwhile? The authors estimate that over their first seven years, the cost of RPS policies, per ton of carbon dioxide abated, is $130 at a minimum. [The evidence leaves a fair bit of uncertainty, and the actual figure may be as high as $460.]

The upshot is that RPS programs aren’t cost-effective. Per dollar spent, they produce relatively modest reductions in carbon emissions. That’s a big problem. Getting the biggest bang for the buck is obviously good on economic grounds. It’s also good from the environmental standpoint: If you can get emissions reductions cheaply, you’re going to get more emissions reductions.

According to some estimates, the social cost of carbon is a lot higher than $50 – perhaps in excess of $200. If that is right, the $130 figure starts to look a lot better. In addition, renewable-portfolio standards reduce a wide range of air pollutants, not just carbon dioxide.

Even with the recent findings, reasonable people might conclude that if carbon taxes aren’t feasible, renewable-fuels portfolios are better than nothing. But Greenstone and Nath offer a crucial lesson: To know what to do about climate change or any other environmental problem, it’s best to be disciplined about the actual consequences, rather than to think about good guys and bad guys.

Cass R. Sunstein is a Bloomberg Opinion columnist.