Renewable energy jeopardy: An answer searching for the right question

On the popular TV game show, Jeopardy!, things work backwards. Contestants are given answers to which they must provide the correct questions. A contestant who provides the wrong question has his winnings decreased by an amount equal to what he would have received had he answered correctly. Therefore, wild guessing is a losing strategy.

Nevertheless, many states have adopted a Jeopardy!-like approach in their energy policies. They are imposing detailed renewable energy mandates that prescribe how much of which renewable energy types must be installed by specific dates. But as in the game show, these renewable energy policies are the correct answers only in response to the right questions.

California is the leading contestant in this perilous renewable energy game. Despite sinking towards bankruptcy, and with many of its citizens leaving for economically saner pastures, California continues to ratchet up its renewable energy mandates. State law now proclaims (thanks to Governor Schwarzenegger's executive order from last fall) that, in just a decade, one-third of the state's electricity must be generated from renewable resources, primarily wind and solar energy.

So let's play Jeopardy! and let's assume the answer is "renewable energy mandates." What's the correct question? Supposedly, California's new mandate answers four questions: How can the US achieve energy independence? How can we reduce consumers' exposure to volatile electricity prices? How can we reduce greenhouse gas emissions? And how can we create "green" jobs?

Let's start with the first question about energy independence. In 2007, California's total energy consumption was about 8,500 trillion Btus. The amount of energy generated from all renewable resources in the state was about 250 trillion Btus, or three percent of that total. But, two-thirds of that renewable generation came from hydroelectric plants that were built decades ago. For the US as a whole, in 2007, up-and-coming wind and solar energy accounted for only one-half of one percent of total energy consumption. And, wind and solar energy continue to require massive government subsidies. How can the US achieve energy independence? Sorry, that's an incorrect response.

How about reducing consumers' exposure to price volatility? Although the "fuel" used by wind and solar generation is "free," a simpler and less costly way to hedge against price volatility is to do what many consumers and businesses already do: buy contracts that specify fuel prices in advance. Those contracts provide well-defined guarantees, and they allow consumers the freedom to hedge as much or as little as they like. This is better for consumers than being forced to pay higher overall electricity prices for renewable generation that isn't available when the wind doesn't blow or the sun doesn't shine. "How can we best reduce electric price volatility?" Sorry, that's the wrong question.

What about reducing greenhouse gas emissions? Setting aside the fact that the Climategate scandal is raising reasonable questions about the veracity of environmental doomsayers' climate change catastrophes-in-waiting, we'd surely be far better off by reducing greenhouse gas emissions through market mechanisms, like a carbon tax. Market mechanisms would achieve the desired reductions at a much lower cost than wind and solar power mandates. Moreover, renewable energy mandates require building new transmission lines (which are unpopular with rural landowners and environmentalists) to deliver that "free" energy to consumers, adding billions of dollars to total costs. Market mechanisms reduced sulfur dioxide and NOx emissions at far lower costs than the Clean Air Act's command-and-control dictats, and a carbon tax would be a far less costly way to reduce CO2 emissions. "Reducing greenhouse gas emissions?' No, would anyone else care to respond?

Finally, will renewable portfolio standards create "green" jobs? Maybe, but what constitutes a "green" job? The electrician wiring the solar panel on your roof: green. The same electrician installing a new light fixture in your home: not green? Some may see the thousands of new government bureaucrats hired to oversee renewable energy programs as "green" jobs. Others may see thousands of more government bureaucrats. Fundamentally, the purpose of renewable generation is to provide electricity that is more valuable than its cost, not to create jobs-green, blue, or tutti-frutti. When governments "create" jobs by mandating renewables development, the cost of electricity goes up and, as Germany and Spain painfully discovered, the result is jobs lost in the rest of the economy. So, if creating jobs is the goal, there are holes to be dug and holes to be filled in. Sorry, you won't be able to play in Final Jeopardy!

Renewable energy mandates are an answer in search of the right question. But unlike Jeopardy! we all lose because renewable energy mandates are the wrong answers to the four questions listed above. We would be better off by deciding on the right questions first, then finding the right answers. That might not be as fun as a TV game show, but it makes a lot more sense when government is playing with our money.

Jonathan Lesser is President of Continental Economics, Inc., an energy and economics consulting firm with offices in New Mexico and Washington, DC.