Report Measures Impact of Renewable Portfolio Standard

“If we could first know where we are, and whither we are tending, we could
better judge what to do, and how to do it.”

Abraham Lincoln

As 2015 drew to a close, the Michigan Legislature felt pressure to complete its overhaul of Michigan’s energy laws. Yet, legislators were unable to complete the process. As 2016 starts, energy policy is still on the table and the pace of change has slowed, but not stopped.

In Crain’s Detroit Business, Jay Greene and I have written about what some legislators have proposed and what issues may arise. My focus has been on net metering and the proposed changes to Michigan law, which resulted in a response by a DTE executive and my reply. Essentially, I argued that before the Michigan Legislature changed the state’s net metering policies, it should conduct some research, as other jurisdictions had, on how it has served us, including the costs AND benefits to determine whether and how it should change the law.

In addition to net metering, some in the Michigan Legislature have proposed to erode or eliminate Michigan’s renewable portfolio standard or RPS. Under Michigan’s RPS, in-state electric providers were required to reach 10 percent renewable energy sources in their portfolios by 2015. In the United States, 29 states have RPS in existence.

Michigan utilities were able to meet the requirement. Some have argued, including Gov. Rick Snyder, that the RPS should be extended. Yet, the Michigan Legislature is debating about freezing or completely repealing the mandate in favor of a voluntary “goal.”

As with the debate on net metering, there appears to be very little in the way of detailed study and analysis of the benefits and costs of the RPS occurring among legislators. If the state is to turn back the clock on its energy policy, it seems that there should be at least some consideration of what an RPS does, both in the way of costs and benefits. Luckily for us, a new study has been released that does just that on a national and regional scale.

On Jan. 6, the Lawrence Berkeley National Laboratory and the National Renewable Energy Laboratory released a report titled, “A Retrospective Analysis of the Benefits and Impacts of U.S. Renewable Portfolio Standards.” The report is the second in a round of three that looks to study and document the costs, benefits and other effects associated with RPS.

The first study looked at the state-level costs and benefits using utility and state data. The newer report then looks to take the disparate data generated by the first report and standardize them so that they could develop consistent data and a national perspective on benefits and costs. A third report will provide information on future cost and benefits of RPS.

The report used data generated for 2013 for its study. The first report looked at costs, comparing what utilities and other load-serving entities incurred under the RPS to what they would have incurred without the RPS. The new report focused on RPS benefits related to greenhouse gas emissions, air pollution (apart from greenhouse gas emissions) and water use. Other impacts pertained to RPS’s effect on jobs, wholesale electricity prices and natural gas prices.

With respect to costs of compliance with the RPS, the earlier report and update that followed it found that those costs equaled approximately two percent of average statewide retail electricity rates. From 2010 to 2013, compliance costs equaled about $1 billion per year on average. Because the data used in the first study was inconsistent and not uniform with respect to the full scope of costs and benefits, the second study developed a more robust review of the larger picture regarding RPS.

The report looked at a specific set of impacts and came to the following conclusions:

Climate change and greenhouse gas emissions: In 2013, RPS compliance resulted in a reduction of 59 million metric tons of carbon dioxide equivalent. Using EPA’s estimate of the “social costs of carbon at $37 per metric ton of carbon dioxide equivalent (which some have argued is too low and others as being too high), the global benefits for 2013 totaled $2.2 billion.

Health and environmental benefits: The report focuses on few air emissions, leaving out possible health benefits related to reductions in other types of air emissions, like mercury, for example. But, looking at sulfur dioxide, nitrogen oxides and particulate matter, the benefits related to replacing dirtier sources with renewable sources result in estimated health and environmental benefits for 2013 at $5.2 billion, preventing anywhere between 320 and 1,100 premature deaths with the Great Lakes states among those benefiting the most.

Water use: Electric power generation is an extremely water intensive endeavor, representing 38 percent of water withdrawals in the country. The report states that the RPS reduced water withdrawals by 830 billion gallons and consumption by 27 billion gallons in 2013.

Jobs and economic development: The report states that renewable energy created to comply with RPS resulted in 200,000 jobs in operations and maintenance and construction, creating $20 billion in gross domestic product. Recent reports bear that out, claiming that solar energy alone in the United States provides more jobs that the oil and gas industry, not all of which are directly tied to RPS compliance.

Wholesale electricity price: Here’s where the analysis gets tricky. The authors of the report warn that reductions in wholesale prices don’t necessarily mean a net savings across all sectors of the economy, but a transfer of wealth from electricity producers and their shareholders to electricity consumers (lower prices means lower profits). The RPS provided consumers savings of up to $1.2 billion in 2013.

Natural gas prices: As with electricity prices, natural gas price reductions provide a net gain for consumers, but not necessarily for their suppliers. The report estimates consumers saved up to $3.7 billion in 2013 due to reduction in natural gas prices attributable to RPS.

Other: The report describes other benefits related to non-monetized benefits to the environment, land use, reduction in the extraction of minerals used as fuel and other types of impacts.

As Michigan considers what form its future energy policy will take, it is important to focus on weighing benefits and costs of each available energy option, including the benefits enjoyed under the current policy. Without this type of data, decisions tend to be made by unsubstantiated feelings, ideological considerations or special interest policy goals that do not serve the public at large.

The next report in this series will provide further data upon which to base sound public policy.

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