Among the most popular justifications for interventionist energy policies is pursuit of a government-imposed “diversified” energy portfolio. Renewable power mandates, net metering laws, and feed-in tariffs are among the most common of such interventionist energy policies states have implemented.
As a nation, our energy portfolio is already well-diversified. About 37 percent of our electricity comes from coal, 30 percent from natural gas, 19 percent from nuclear, 7 percent from hydropower, 3 percent from wind, 1 percent from biomass, and less than 1 percent each from geothermal and solar.
Although diversifying our sources of energy benefits the nation by making it less vulnerable to price shocks, it should not be done by government manipulating the energy markets at consumers’ expense. As economics and law professors Andrew Morriss, William Bogart, Roger Meiners, and Andrew Dorchak note in The False Promise of Green Energy, diversification of energy sources makes sense only when the new sources are cost-effective and reliable. Programs that subsidize or mandate expensive forms of energy become thinly veiled excuses for politicians to hand out money to special interests, giving such companies incentives to spend more money on lobbying than innovation and exploration.
A Reason Foundation analysis of the U.S. Department of Energy’s Section 1705 Loan-Guarantee program found 22 of the 26 projects receiving loans-guarantees were rated as “junk” grade investments or lower, and the other four were rated in the lowest “investment” grade class. Even though the projects lacked merit, many of those firms received loan guarantees which correlated strongly with their lobbying expenditure, the authors found.
The report states, “[T]his green cronyism likely undermined the very thing it was supposed to support: by encouraging private investment in unduly risky projects, it diverted money away from more sustainable projects that might actually result in environmental improvements.”
Fossil fuel resources haven’t been growing scarcer, “as measured by finding costs, the sales price of reserves in the ground, inflation-adjusted prices, or known reserves,” the Cato Handbook on Policy observes. And when they do become scarcer, prices rise accordingly and market actors have all the information they need to switch to alternatives without government insistence.
Governments should not impose policies under the guise of energy diversification that prop up inadequate technologies such as wind and solar, which are too intermittent, expensive, and unreliable to mitigate fossil fuel dependence. Legislators should focus on repealing government policies that intervene in energy markets, such as mandates and subsidies, and instead allow open and competitive marketplaces to work.
The following documents provide additional information about diversified energy portfolios.
Ten Principles of Energy Policy
Heartland Institute President Joseph Bast outlines the ten most important principles for policymakers confronting energy issues, providing guidance to deal with ongoing changes in markets, technology, and policies adopted in other states, supported by a thorough bibliography.
Stimulating Green Electric Dreams: Lobbying, Cronyism and Section 1705
The Reason Foundation investigates the fiscally unwise but ostensibly virtuous process by which the U.S. Department of Energy systematically made loan guarantees to several failed renewable energy companies, primarily solar. The investigation found the DOE allocated funds in proportion to each entity’s lobbying expenditures, revealing merit was never considered before making poor “investment” decisions using taxpayer dollars.
How Wind and Solar Power Are Polluting the Commons
Private lawyer and accountant John Petersen argues our electric grid is an essential commons no less important to an industrial society than our air or water. Regarding renewable power, he writes, “the electric current they generate is inherently unreliable and intermittent, which makes it fundamentally destabilizing to the grid. That introduction of massive intermittency into a system that requires absolute stability is, by definition, pollution.”
The False Promise of Green Energy
The energy blog Master Resource reviews the Cato Institute’s 2011 book The False Promise of Green Energy, which examines domestic energy production while addressing myths about the feasibility of large-scale renewable-power development.
Cato Handbook on Policy
The sixth edition of the Cato Handbook on Policy, released in 2005, includes myriad proposals to reduce the size and scope of the federal government. Chapter 45 discusses energy policy and explains how interventionist policies undermine markets, taxpayers, and even the environment.
Eyes on a Climate Prize: Rewarding Energy Innovation to Achieve Climate Stabilization
In a 2011 paper for the Harvard Environmental Law Review, Case Western Reserve University School of Law Professor Jonathan H. Adler examines prize programs as an effective climate change policy. Adler finds prizes are far more cost-effective than traditional incentive programs, and at the very least are a necessary complement to existing programs. Without prizes or “some other enhanced incentive for technological innovation, the necessary technological breakthroughs are much less likely to materialize,” Adler argues.
Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit the Environment & Climate News Web site at http://news.heartland.org/energy-and-environment, The Heartland Institute’s Web site at http://heartland.org, and PolicyBot, Heartland’s free online research database, at www.policybot.org.
If you have any questions about this issue or The Heartland Institute, contact Heartland Institute Policy Analyst Taylor Smith at [email protected] or 312/377-4000.