Tag: "state subsidies"

Let Wind and Solar Energy Subsides Expire

Wind energy is doing very well…even though renewable sources of energy are still just a fraction of energy output in the United States with significant federal and state subsides. The success that some states have had with wind energy production is encouraging other states to expand their wind energy production offshore. However, offshore wind facilities will be very expensive to build and maintain.

According to the Energy Information Administration (EIA):

  • Offshore wind is 2.6 times more expensive as onshore wind power and is 3.4 times more expensive than power produced by a natural gas combined cycle plant.
  • On a kilowatt hour basis, offshore wind power is estimated to cost 22.15 cents per kilowatt hour, while onshore wind is estimated to cost 8.66 cents per kilowatt hour and natural gas combined cycle is estimated to cost 6.56 per kilowatt hour.
  • Overnight capital costs (excludes financing charges) are 2.8 times higher for offshore wind than onshore wind power.
  • An offshore wind farm is estimated to cost $6,230 per kilowatt, while those costs for an onshore wind farm are estimated to be $2,213 per kilowatt.

Apparently, solar energy is now more affordable. If solar energy is now affordable, then the federal subsidies are no longer needed. These federal subsidies have provided wind and solar developers with as much as $24 billion from 2008 to 2014.

The biggest wind and solar tax credits have expired or will expire by 2016. Let the renewable energy sources compete in the market by letting their subsidies expire.

California’s Renewable Portfolio Standard

California’s 2002 Renewables Portfolio Standard (RPS), Senate Bill No. 1078 mandated that electric providers procure renewable power from eligible sources at 17% of customer sales by 2017. The bill also required the Public Utility Commission (PUC), being the regulatory agency for electricity providers, establish a certification and monitoring program through the state Energy Commission. Subsequently, Senate Bill No. 107, along with executive orders, accelerated the program to require a 20% renewable procurement by the end of 2010 and 33% by the end of 2020. Recently, Governor Jerry Brown announced his proposal to further increase the portfolio standard to 50% by 2030. According to the RPS Program Overview page, California’s goal is to be, “One of the most ambitious renewable energy standards in the country”. It appears the state may have succeeded in that effort.

Currently, federal funds nurse CA’s renewables mandate in the form of subsidies like the Production Tax Credits (PTC) and American Recovery and Reinvestment Act (ARRA). However, revenue from these federal programs are not expected to continue, and pressure is mounting for the renewable fuel industry to stand on its own. In fact, several states are reconsidering their programs’ viability.

So, how will proponents peddle the program to consumers when the federal subsidies end? The full cost associated with RPS programs are difficult to evaluate. A 2015 study by the National Renewable Energy Laboratory (NREL), and prepared for the U.S. Department of Energy (DOE), estimates an expected 10% increase in electrical energy costs to consumers as a result of the state’s RPS. This, to a state with consistently the highest electricity cost in the nation. Still, the consumer impact aspect of continuing, even expanding the mandate, does not appear to be the primary consideration. The report suggests the methodologies used to discover the true costs are demonstrably inappropriate. As well, outlays for integration, transmission, and administrative expenditures are not included in the cost analysis.

NREL suggests to policymakers that going forward, they should look beyond “simply a narrow consideration” of the costs of the program to ratepayers. Instead, the report promotes the development of a means to recognize program value based on “broader societal impacts”.

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Electric Vehicles: More Harm than Good?

A recent study by Stephen P. Holland from the University of North Carolina- Greensboro and other economics and business professors has found the environmental benefits and harms of electric cars vary state by state. The federal government currently awards a subsidy of $7500 for each electric vehicle bought, with some states adding their own subsidies to such purchases. Such subsidies reflect current movements towards green policies.

Electric vehicles, however, are clearly not “zero emission vehicles.” First of all, the components of those vehicles are made in factories most likely powered by fossil fuels. Second, the electricity used for the vehicles themselves comes from power plants across the United States, where around 70 percent of power plants operate on natural gas or coal. In most areas around the country, driving an electric vehicle means choosing to burn coal and natural gas rather than burning oil.

Due to differences in energy production by states, using electric vehicles may be better in some states while continuing to drive gas-powered cars in others may be best. In California, for example, the electric grid is relatively clean while gasoline vehicles produce more environmental damages. In North Dakota, the opposite is true as the electric grid uses more coal.

The report found that on average electric cars are about half-a-cent worse per mile for the environment than gas-powered cars. However, gas-powered cars are worse in congested urban areas while electric cars are worse outside of metropolitan areas. A one-size-fits-all policy regarding electric cars therefore does not make sense. The federal subsidy should be eliminated, leaving only state subsidies for electric vehicles where they already exist.

 

Draconian California Water Restrictions

California has been plagued by a highly-politicized water crisis for months now, despite crisis warnings for years.

The state has fallen prey to the “tragedy of the (water) commons”, where each person feels their single contribution to the water crisis will not impact the overall situation. With this thought, each Californian uses water like it rained yesterday, with no regard to the desperate calls from Governor Jerry Brown for water conservation.

Until now, Californians have faced few real incentives to lower their water consumption levels. Past water infrastructure subsidies have kept the price of water down as political forces ensured a disastrously low price for California’s many residents. The result was a low water price of less than 0.7 cents per gallon in 2014 for San Diego and Los Angeles. In cities such as Irvine, next to the University of California, the price can be as low as 0.2 cents per gallon.

Economists believe simply raising the water price by 10 percent could cut consumption by 2 to 4 percent.

Not limited to simple price increases, however, new California laws are mandating significant decreases in water consumption. These policies include:

  • New cuts affect 276 rights held by 114 entities to pull water from the Delta, Sacramento, and San Joaquin watersheds. Each of these entities could be supplying water to dozens of additional users.
  • Farmers in the Central Valley have already had their surface water allotment lowered or erased in the last few years.
  • In May, about 200 farmers agreed to lower their water usage by 25 percent in exchange for a promise to face no deeper cuts during the growing season.
  • Other restrictions implemented in May limited yard watering to twice a week and between the hours of 9 a.m. and 6 p.m.
  • Owners of large farms will now have to hand over detailed reports of their water use to state regulators.
  • A recent executive order calls for the replacement of 50 million square feet of ornamental turf, such as municipality-owned lawns or private lawns.
  • For wealthy consumers, districts now reserve the right to install flow restrictors for private use.
  • Top water users are facing cuts up to 36 percent.

While these policies might lower water consumption, they may be a little too much too late. In the end, these draconian measures are sure to enrage those who can afford higher water prices, while also punishing farmers and low-income water consumers.

Wrongly Justifying Electric Car Tax Breaks

Math errors. Exaggerations. Phony metrics. Trickle-down economics. The recent e-mail from JJ McCoy of the Seattle Electric Vehicle Association to the legislature has it all.

Electric car advocates in Washington State are again asking for a sales tax break on top of the existing federal tax credit they receive of $7,500. Their sales tax break costs the state about $10 million a year. To put that in context, that is about one-quarter of the Washington State Salmon Recovery Funding Board’s annual funding.

Put simply, when McCoy’s math is corrected, the environmental value of the $39 million tax break is only $2.6 million — a waste of $36.4 million — not the $18 million benefit he wrongly claimed.

As we’ve pointed out, these tax breaks go predominantly to the wealthiest 10 percent — people who are not price sensitive and would have likely purchased an electric car anyway.

Even worse, much of the argument in favor of extending the sales tax breaks is not only wrong, it contradicts other claims electric car lobbyists make.

Case in point is the e-mail sent by JJ McCoy, lobbyist for the Seattle Electric Vehicle Association and Northwest Energy Coalition. It demonstrates how far those lobbying for these wasteful and ineffective subsidies have to go to assemble an argument.

Here are the claims made by McCoy and the Seattle Electric Vehicle Association, and the reality.

Claim: If the sales tax exemption is allowed to expire, Washington’s market share for plug-in vehicles will drop 63% — that, according to a study by the Keybridge Economic Group, led by former Clinton Council of Economic Advisors Robert Westcott, PhD.

Reality: Actually, the Westcott study does not prove sales would fall this much — it simply assumes it. They write “sales in Washington are assumed to drop from 1.2 percent of total vehicle sales to just 0.5 percent of sales” [emphasis mine]. They get the 0.5 percent figure by using the Oregon level of 0.8 percent and then adjusting downward. Why? The study authors don’t explain. They simply say, “several state-specific factors have created a particularly conducive environment” in Oregon, but don’t explain what the factors are.

McCoy uses this phony math to claim the tax breaks increase sales by 2,100 cars a year. If we use the actual Oregon level as a baseline, the number is 1,111. Even this number is exaggerated. Washington’s median income is about 15 percent higher than Oregon’s, offering a much better environment for buyers with disposable income to buy expensive, luxury cars.

Even with McCoy’s completely unsupported assumption, however, his math does not add up.

Claim: Each of those 2,100 extra cars, powered by Washington’s very clean grid, will avoid nearly 5 tons of carbon emissions annually compared to the average 25 mpg gas car.

Reality: This math is completely inaccurate. Who says so? The Seattle Electric Vehicle Association itself. Its own “EVangelism” flier says electric vehicles would avoid 4.2 tons of CO2 emissions compared to a 23.6 MPG car, or 3.8 tons compared to a 25 MPG car — about 25 percent lower than what McCoy told legislators.

Claim: That’s nearly 75 tons over the 15-year life of the car, and may even be more…

Reality: The Westcott study, the one McCoy cites just two paragraphs earlier, says the average lifespan of an electric vehicle is 12 years, not 15 years. Again, McCoy contradicts his own source studies to exaggerate the benefits of an EV by another 20 percent.

Using McCoy’s own calculations of 3.8 tons per year and a 12-year lifespan, the actual amount of CO2 avoided would be 45.6 tons per year (assuming the grid is 100 percent clean, which it is not). That is 40 percent less than McCoy’s exaggerated e-mail claimed.

Claim: Those avoided emissions are worth $57 million using OFM/Commerce standard methodology for valuing the Social Cost of Carbon (currently about $65 per ton).

Reality: McCoy makes numerous mistakes here.

First, the Social Cost of Carbon is not $65 per ton, it is $65 per metric ton — which reduces the cost by about ten percent (even that number is about five times higher than the EPA calculates). The cost of carbon is universally calculated in metric tons. He doesn’t seem to know the basics of carbon economics.

Second, his own math doesn’t add up to $57 million. He claims, wrongly, that the benefit would increase EV sales by 2,100 cars per year for four years — 8,400 cars. He claims, wrongly, that each car would reduce CO2 emissions by 75 tons over its lifetime. And he claims, wrongly, that each ton is valued at $65. So, the four year total should be 8,400 x 75 x $65, which equals $40,950,000, not $57 million. He’s off by another 22 percent.

But, as we’ve seen, even $40,950,000 is a significant exaggeration. Using the accurate numbers, the total is 4,444 x 45.6 x $59, which equals about $12 million — about one-fifth the amount McCoy claimed.

Again, that calculation uses McCoy’s own numbers cited elsewhere. Using his numbers, he is off by 79 percent.

But it gets much worse.

The key is not the social cost of carbon, but the amount it costs to reduce a metric ton of carbon using other approaches. For example, investing in efforts to reduce methane emissions from landfills costs about $13 per metric ton on the open market and can go down as low as $3. McCoy wants the state of Washington to spend $65 to get what it can receive for $13. If climate change is really as threatening as he and others claim, why would he be willing to waste 80 percent of the money spent to reduce carbon emissions?

Using the market price of carbon reduction, the actual carbon-reduction value of the EV sales tax break is a paltry $2.6 million over four years.

Claim: This is a surplus value of $18 million over the $39 million that HB 2087 will reduce state and local revenue by over its 4-year duration.

Reality: Using the correct calculation, it is actually a loss of $36.4 million to subsidize wealthy electric car buyers. Put another way, for every dollar the state provides subsidizing electric cars to reduce carbon, more than 93 cents is wasted. Nobody who is serious about cutting carbon emissions would advocate such a wasteful environmental policy.

A similar version of this blog post appeared at the Washington Policy Center.

Governor Walker to Eliminate Unnecessary Renewable Energy Funding

The governor of Wisconsin, Scott Walker, is planning to eliminate the funding to the University of Wisconsin-Madison renewable energy research center.

Cutting state government funding of renewable energy is generally a good idea for several reasons. First, government involvement and interference in a market, in this case the energy market, leads to unnecessary problems and inefficiencies within that market. Second, if now is the right time to push renewable energy, then the private sector would be the one that is already funding these projects, not the state government. Finally, this is the taxpayer’s money that we are talking about here. Did a majority of Wisconsinites vote in favor of millions on renewable energy research?

In the future, when the private sector indicates which and when renewable energies are needed, we can then take another look at the university’s research center:

The research program, founded in 2009, is charged with developing technologies to convert wood chips, corn stalks and native grasses to homegrown sources of power. Along with wind, solar and hydroelectric power, bioenergy is seen as a long-term option to reduce the state’s reliance on coal, oil and natural gas.

Until that time, we will have little need to reduce our need on coal, oil and natural gas. There is an abundance of those resources out there and new technologies and findings are ever increasing that abundance.

Still Too Early for Solar Energy

Many are claiming that solar energy is both great for the environment and a good investment. The focus has been on solar panels that are mounted on top of homes. Several nations and some states in the U.S., have been utilizing this renewable energy resource. However, solar energy is too new of an energy source to invest in at this time.

How can we tell? If the government is still giving any kind of financial incentive, then that means that the market has not caught up and it is still overpriced. Currently, the U.S. federal government gives a 30 percent tax credit for installing a solar energy system at home. On top of that, cash is also given directly to new solar systems ― Utah gives out $2,000 in cash incentives.

The day that tax credits and direct money incentives disappear, is the day that renewable energies, such as solar power, are priced closer to a solid and efficient energy market. That is the day you should invest in solar energy for your home ― if it is at a good price.

 

Developing a State Free Market Transportation Policy

In my last post we examined how to create a local free-market transportation policy. This posting will examine how to create a similar policy on the state level where Republicans will control 32 governorships in 2015, almost 2/3 of the U.S. total. Most states lack a comprehensive transportation vision. Many depend on Washington D.C. for more than 50% of their funds. Yet with federal budget challenges, most policy makers expect federal funding to decrease. As a result, states need to create a transportation vision and ensure that they have the budget to implement such a vision.

States should focus on funding statewide assets. What is a statewide asset? Generally, it is a transportation asset that serves intrastate movement. Most national systems which transport people throughout the country transport people throughout the state and qualify as state assets. These systems include Interstate highways and other major roads that are part of the National Highway System, class one railroads and certain aviation routes. Railroads typically are self-funded so states can merely need to coordinate freight needs with the railroads. Intrastate passenger rail services should also receive some state-level funding assuming the corridors are commercially viable. Statewide and regional transit systems also merit some funding, although the majority of funding should come from the regional, county or city level. While it may be popular to fund non-motorized transport, bicycling and walking are primarily local activities that should be funded at the regional, county or local level.

How should states fund such a system? Similar to at the federal level, the most economically efficient method is a user-pay/user-benefit system. For highways this means transitioning from a partial user-pay/user-benefit gas tax system (some of the money gets diverted to other uses) to a complete user-pay/user-benefit mileage based user fee system (MBUF). An MBUF is the best option because it could be set up to include no revenue diversions. Further, it allows states to vary rates based on type of road and level of congestion to provide a more advanced system. Oregon allows its drivers to choose from one of three models. The most advanced option monitors driving habits and charges rates based on the type of road and the time of day. But for those wary of government intrusion Oregon also offers the option of an annual fee with neither destination nor time-of-day monitoring for motorist travel. Oregon also refunds gas tax revenue so motorists are not paying twice.

 

Western Water Market Needed

Outdated laws and lack of a water market in western United States, continues to cause problems and increases the chance for dire consequences.

Droughts continue to cause more damage to farmers and the regional economy. As the population rapidly increases in these already dry western states, the water laws must be reformed, at least for now, to allow for:

  • Short-term leases of water.
  • Basic market institutions.
  • Risk-migration tools such as dry-year options.
  • Basic controls such as regulating how much water can be pumped.

Opening up water markets will improve the efficiency of water supply and demand and provide water at the most appropriate price to everyone. Such a system will be better prepared for droughts and other consequences to the increasing water shortage in the west.

Georgia Subsidizes 90 Percent of Nissan Leaf

A government’s decision to subsidize one electric vehicle model over all other vehicles is a problem. It distorts the economy picking winners and losers regardless of the environmental benefits. But when such also increases greenhouse gases it is even worse. Yet, this is the situation playing out in Georgia.

Metro Atlanta is the second largest market in the U.S. after San Francisco for electric vehicle sales. And many of these sales are due to one vehicle model: the Nissan Leaf. Atlanta has been the Leaf’s largest market over the past year, in large part because Georgia offers Leaf buyers a $5,000 tax credit. Coincidentally, Nissan played a significant role in the tax credit’s passage. Yet other electric and hybrid vehicles do not receive the same tax incentive. In cases where vehicles are sold directly by manufacturers, only the first 150 are eligible for the tax $5,000 tax credit. This provision seems designed to prohibit Tesla buyers from receiving this subsidy, since Tesla is the only major vehicle not sold through dealers. The subsidy also does not apply to gas-electric hybrids such as the Ford Fusion or Toyota Prius.

But the Nissan Leaf cannot even claim it helps the environment. Much of the fuel used to generate power in Georgia is coal. As a result, when the Nissan Leaf charges its battery with electricity, it relies primarily on coal, one of the most polluting power sources on the planet. Yet when the unsubsidized Toyota Prius charges its battery, it uses its oil-powered engine. As a result the Prius is responsible for fewer greenhouse gas emissions than the Leaf. In fact the Nissan Leaf produces almost as much greenhouse gas as a conventionally powered vehicle with good fuel efficiency such as the Honda Fit.

The retail price for the Nissan Leaf is approximately $30,000. Yet after factoring in gasoline savings and state incentives of $5,000, drivers can lease a Leaf for free. The monthly payment for a 24-month lease is $235 per month for a total of $5,640. Add in the $5,000 state tax credit and lessees come close to breaking even. In addition, gasoline savings of savings of approximately $100 a month ($2,400 total) provide lessees with nearly $2,000 in yearly profit. Georgia spent close to $2 million on tax credits for electric vehicle owners in 2013. It is time to retire a tax credit that distorts the economy and increases greenhouse gas emissions.