Hood: A modest proposal on electric power

Mar. 22, 2013 @ 10:26 AM

Sometimes, despite good intentions, we just get things wrong. That’s what happened in 2007, when the North Carolina legislature enacted a bill to force electric utilities to buy “renewable” power from wind, solar and other expensive and unreliable sources.
When I say “we” got it wrong, I mean it in the broadest possible sense. The legislature and then-Gov. Mike Easley got it wrong by ignoring the effects of higher electric rates on North Carolina’s economy. At the time, they stated the primary goal was to combat global warming.
But I must also admit that my John Locke Foundation colleagues and I also got it wrong back in 2007. Arguing against the bill, we pointed out that even if North Carolina’s carbon-dioxide emissions suddenly dropped to zero – which would require, among other things, the mass extinction of North Carolinians – the effects on climate change would be too small to measure.
We also commissioned a study of the economic impact from economists at Suffolk University’s Beacon Hill Institute in Boston. They found the extra electricity costs would slash the state’s GDP by $140 million and cost thousands of jobs.
That’s where things started to go wrong for us. You see, we put our faith in smarty-pants Ph.D.s from Massachusetts. Their fancy econometric models assumed that if you force consumers to pay more for power, and artificially induce investors to finance the construction of those expensive power facilities rather than other capital assets, that would reduce jobs and incomes elsewhere in the economy – while the higher rates could deter some electricity-dependent companies from locating in North Carolina.
It turns out, however, that when it comes to electrical power, households and businesses don’t pay their bills in the normal way. According to a recent report commissioned for the N.C. Sustainable Energy Association, which represents the companies subsidized by North Carolina’s renewal-portfolio standard, the legislation has created more than 21,000 jobs since its passage in 2007. That’s because installing solar panels and the like requires spending money on employees and contractors.
Actually, I should be more specific: The Sustainable Energy Association says the mandate to buy expensive electricity has created or retained 21,000 job years. If someone has the same job for four years, that is considered four “job years.” In reality, the study estimated an average of 4,233 jobs since 2007. Still, what an impressive way to exaggerate economic impacts! In JLF’s defense, we were unable to foresee such statistical wizardry in 2007, since the “job years” and “jobs retained” tricks came to prominence in 2009 when employed by the Obama administration to sell their fabulously successful stimulus program.
Anyway, the point is that JLF hired the wrong consultants, who then used the wrong model. When it comes to electricity, it is apparently safe to assume that higher costs are really higher benefits. All you need to do is produce a lengthy study proving the obvious point if a government regulation compels higher spending, somebody receives the money. Only in highfalutin economics departments is it necessary to account for where the money would otherwise have been spent.
Having made this discovery, however, supporters of North Carolina’s 2007 renewable-portfolio mandate – that is, opponents of Rep. Mike Hager’s 2013 bill to revisit it – failed to see the logical conclusion. Even windmills and solar panels fail to maximize the potential creation of job years from high-cost electricity.
So JLF is proposing a new approach. Let’s amend the 2007 law to require that at least 25 percent of North Carolina’s electricity come from human generation. Approved technologies would include stationary bicycles, hand cranks, even new devices to produce current from activities such as human breathing. We conservatively estimate this would create at least a million job years through 2016. In fact, all unemployed North Carolinians could find work producing electricity, as long as they are capable of independent respiration.
Remember, human beings run on food, which is a renewable resource – as is the resulting waste product.
John Hood is president of the John Locke Foundation.