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“Clean Energy Standard”: Time to Revisit Fundamental Assumptions

 [Editor note: This response to the Senate Energy & Natural Resources Committee’s March 21, 2011, "White Paper on a Clean Energy Standard" is by Glenn R. Schleede, citizen, taxpayer and consumer. He is retired after working more than 35 years on energy policy matters in the federal government and the private sector. ]

Thank you for undertaking a de novo review of the matter of a potential “clean energy standard.’ Such a review is far preferable to previous attempts to force such a standard on the people of the United States without adequate consideration of its cost and benefits.

My comments are directed towards fundamental issues that are not addressed directly by the Committee’s six major questions or thirty-three subsidiary questions; i.e., the fundamental issues of:

· Whether assumptions underlying proposals for a “Clean Energy Standard” or similar proposals are valid, and

· Whether actions by governments to select, promote, or mandate particular energy technologies and sources are in the national and public interest.

My more detailed analysis (below) explains that, during the past 35+ years:

· Governments have been unsuccessful in picking winning energy technologies and, instead, have forced spending of billions in tax and energy consumer dollars on technologies that have not proven to be commercially viable and have helped drive up electricity costs.

· Government actions to promote the government-selected technologies have resulted in (a) transferring billions of dollars from taxpayers and energy consumers to developers and owners of high cost energy sources, (b) diverted capital investment towards high cost, low production energy projects, and (c) focused human resources on government-selected, highly subsidized endeavors, diverting human and financial resources from innovative and productive private sector activities.

The president’s proposal for a “Clean Energy Standard” is an arbitrary one, unsupported by adequate consideration of costs, risks, and benefits. Rather than proceed with the design of a “Clean Energy Standard,” the Committee and its staff should undertake or promote thorough reconsideration of the assumptions that underlie such proposals.

Further, the Congress should avoid taking further actions that interfere with and distort energy markets and avoid expanding the role of government or extending costly tax breaks and subsidies for wind and other renewable energy sources that are unlikely to become commercially viable.

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The Committee’s Request for Comments on a potential “Clean Energy Standard” is welcome since, as the White Paper notes, “While a number of CES proposals have been introduced or discussed in past Congresses, the concept has not yet been seriously considered or analyzed.”

Neither the President’s CES proposal nor other such “standards” advanced by others should be adopted until the added costs that would be imposed on energy consumers, taxpayers, and the U. S. economy are identified and demonstrated to be in the national and public interest.

Sober, Objective Analysis Needed

Experience shows that proposals to set “standards” for some minimum share of electricity that must be produced by “renewable” energy sources, whether called CES, RPS, or RES, (1) are based on faulty assumptions.

Specifically, such standards:

· Assume that energy technologies or sources selected by government officials (who “pick winners”) are in the national and public interest even though their full environmental, economic, and energy reliability costs, risks, and benefits have not been evaluated.

· Assume that the mandated technologies or sources that are not competitive with alternatives will become competitive – through technological improvements or “economies of scale” — if an artificial, high priced market is created by government imposed “standards.”

In effect, a “Clean Energy Standard” is another subsidy for the owners of facilities that employ the uncompetitive, government-selected technology or energy source. It would add to dozens of other federal, state, and local tax breaks and subsidies (2) that transfer wealth – already in the billions – from the pockets of ordinary taxpayers and energy consumers to the pockets of developers and owners of government-selected energy technologies, facilities and sources.

False Assumptions

As indicated, assumptions underlying the rationale for any federal and state government “clean energy” standards are proving to be false.

For example, during the past 35+ years, government officials have demonstrated that they are not successful in “picking winners”; i.e., selecting the energy technologies and sources that, through government sponsored R&D, tax breaks, subsidies, and mandates, will turn ideas into products or services that will survive in private, competitive markets.

Since 1973, attempts to pick “winning” energy technologies and sources have been a staple in the energy policies of most Administrations and Congresses. Dozens of technologies have been picked by presidents, executive branch officials and members of Congress from both parties and favored with hundreds of millions and even billions of taxpayer and energy consumers’ dollars. This is particularly true in the case of “renewable” energy technologies that are being considered for a potential “Clean Energy Standard.”

From 1973 to 2010, DOE and its predecessors have spent over $145 billion (in 2010$) (3) of our tax dollars on “energy R&D” (not including spending for basic energy research) on a wide variety of Government-selected potential technology “winners.” Billions more have been spent for tax breaks and subsidies to encourage or force development, demonstration, and deployment of some of these technologies.

Despite the billions, DOE remains unable to claim that its support for these technologies have resulted in commercially viable (i.e., unsubsidized) products that will make a significant contribution in supplying the nation’s energy requirements.

Repeated, government-selected energy technology “winners” have fallen by the wayside because their government and private sector advocates’ claims have proven to be wrong because of (a) true costs much higher than claimed, (b) insurmountable technical obstacles, and/or (c) unacceptable environmental impacts.

Wind energy is a prime example. Billions of taxpayer and electric customer dollars have been spent on R&D, demonstration, and deployment of wind turbines. A large government-created but artificial market for wind energy has been created in the US and other countries, large companies have become involved in the manufacture of wind turbines and associated equipment, and hundreds of “wind farms” with thousands of wind turbines have been built around the world.

Despite all this, there is little likelihood that wind energy will become a commercially viable energy source supplying significant amounts of energy – as acknowledged by the wind industry with its massive lobbying efforts to convince US and foreign governments to continue and expand the huge taxpayer and electric customer financed tax breaks, subsidies, and mandates that have propped up the technology.

Furthermore, it has become clear that the wind industry and its advocates in governments have greatly overstated the environmental, economic, and energy benefits and effectiveness of wind energy. Even more important, they have understated or ignored wind energy’s adverse environmental, ecological, economic, energy reliability, scenic and property value impacts.

In fact, electricity from wind is high in true cost and low in real value, particularly because of its intermittence, volatility, and unreliability. In most areas, electricity from wind tends to be produced at times of relatively low electricity demand and is unlikely to be produced at times of peak electricity demand. Reliable, dispatchable electric generating capacity must always be available to compensate for the unreliability of electricity from wind and maintain the stability of electric grids and the reliability of electric service.

As in the case of other “renewable” energy sources, countries around the world have learned that electricity from wind helps drive up electric bills. Countries where governments have been most aggressive in promoting wind energy, such as Denmark and Germany, have some of the world’s highest electricity costs and electricity bills.

Economic benefits have been limited or negative. Construction and operation of “wind farms” provides very few jobs and little local or regional economic benefit, particularly when compared to other, less costly sources of electricity production. Higher taxes and electric bills mean that ordinary consumers have less money to spend for food, clothing, shelter, medical care, education and other high priority needs. High costs and high taxes drain money from local economies.

Negative Impacts of Government Tax Breaks and Subsidies (Including mandates and “standards” requiring use of certain government-selected energy technologies and sources)

Ample experience in the U.S. and other countries has demonstrated that actions by governments to force use of energy technologies and sources have consistently resulted in higher energy costs for consumers and produced other adverse environmental, energy reliability, and economic impacts.

None of the “emerging” energy technologies or sources that Washington (Congress and/or executive branch) has picked as “winners” has achieved commercial success despite massive tax breaks, subsidies, R&D, and mandates that allegedly would provide a “market foothold.”

Instead, huge tax breaks and subsidies and government mandates have:

· Resulted in the transfer of hundreds of millions of dollars from the pockets of ordinary taxpayers and energy consumers to the pockets of a few owners of “wind farms” and other renewable energy facilities.

· Diverted billions in capital investment dollars to projects (e.g., “wind farms”) that produce very little electricity — which electricity is intermittent, volatile and unreliable, and most likely to be produced when least needed and not at times of peak electricity demand.

· Created a situation where once innovative companies (such as GE) have focused their human and financial resources on “milking” government tax breaks and subsidies rather than pursue innovative and productive activities resulting in products and services that could be effective in the private, competitive economy.

Conclusions

Instead of proceeding with the design of a potential “Clean Energy Standard,” the Committee and its staff should revisit the basic assumptions underlying government actions to select winning technologies and question seriously whether existing and proposed tax breaks, subsidies and mandates are in the national and public interest.


(1) CES – Clean Energy Standard, RPS – Renewable Portfolio Standard, or RES – Renewable Electricity Standard.

(2) Federal tax breaks (such as production tax credits, accelerated depreciation and investment tax credits), and subsidies such as cash grants, low interest loans and loan guarantees, R&D spending, low or no cost use of public lands, promotional activities, and Executive Orders requiring federal agencies use high cost renewable energy. Various state governments have similar and additional tax breaks, subsidies, and “Renewable Portfolio Standards.” See www.dsireusa.org.

(3) Data Source: Budget of the United States FY 2011, Historical Tables, Tables 9.8 and 10.1

3 comments

1 Ed Reid { 04.12.11 at 8:11 am }

Glenn,

It seems to me that there are two very fundamental questions which must be answered before any of the committee’s questions are addressed:
1) What is the specific, detailed reason for pursuing a CES?
2) What is the ultimate objective of the effort?
It is unclear to me whether the underlying objective is carbon emissions reductions, energy independence, renewables promotion or government control of the energy industry. It is also unclear to me whether the President’s current “target” is the end point, or merely an interim “target”. I suspect it may also be unclear to the members of the committee.

If, as I suspect, the ultimate goal is a zero carbon emissions economy, that must be acknowledged before the committee begins its deliberations. The investments which would be required to reduce (but not eliminate) coal plant emissions and to develop the additional natural gas production and transmission capability to meet the President’s “target” would be massive; and, they would likely not be made if it were obvious that they were merely an interim step to complete elimination of fossil fuel use in the US.

The most expensive and ultimately least productive approach to an issue such as this in goal-less, plan-less incrementalism. The federal government is enamored of roadmaps. However, roadmaps have no utility if you do not know where you are going.

“Don’t begin vast programs with half-vast ideas.” :-)

Ed

2 John Droz { 04.12.11 at 9:07 am }

Glenn:

Thank you for taking the time to make some good comments to the committee.

I hope that they will give them adequate attention.

3 Jay Banks { 04.13.11 at 2:38 am }

We can see there is no clear strategy for renewable sources in the future. The government is focusing on many targets according to the thorniest issues which come up every so often. I assume that latest occurrences in Japan may break the ice. Despite huge damages it can bring some positive movements for the rest of the world.

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