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Like so many U.S. states in the last decade, Ohio’s legislature was successfully lobbied by crony capitalists and environmental radicals to impose a back-door tax on consumers via government mandates on renewable energy and energy efficiency. State Republicans in the legislature overwhelmingly supported these measures that, in the end, will hurt coal power generation in Ohio more than coal-related regulations from President Obama and his Environmental Protection Agency (EPA). GOP State Senator Bill Seitz seeks to address some of the insanity perpetrated by the previous state legislature via Senate Bill 58, but opposition from within the Republican Party to reform remains formidable. Although we support a full repeal of these market distortions created by the state government in order to protect all consumers, including the poor and elderly who survive on a fixed income, we believe that Senator Seitz is moving the discussion in the right direction. Accordingly, his GOP colleagues should support his endeavor.
By 2025, the amount of Ohio’s electricity produced by alternative energy sources is required to increase to 25 percent. Specifically, generation from renewable sources is required to reach 12.5 percent – in contrast to a 2-percent mandate today. At the same time, the state requires a 22 percent reduction in the annual average energy consumption and peak demand that occurs during the three-year period prior to 2025.
These numbers were chosen by the legislature in Columbus when demand for electricity was expected to grow substantially over the next few decades. In a textbook example of why government – at any level – should stay out of Soviet-style market planning, state legislators reasoned that reducing demand for electricity (increasing efficiency) would be less expensive than building new generation. Moreover, they also assumed that putting aside a relatively small percentage of new generation build-out for renewable sources could be achieved at a reasonable cost. Unfortunately, they were dead wrong.
Soviet-Planning Ohio Style
Rather than demand for power increasing, electricity generation in Ohio dropped significantly – 15.3 MWh in 2008 to 12.4 MWh (in thousands) this year – already a reduction of nearly 20 percent. With lots of excess generation capacity on the grid, there is no market for building new capacity for renewables nor is there any regulatory justification for efficiency gains to reduce the cost of building new generation.
Efficiency, by definition, is good for our economy when it is based on rational economic choice. However, government-imposed energy efficiency results in inefficient and costly demand destruction. Specifically, the Ohio energy efficiency mandate drives baseload power generation from the grid, particularly coal-fired electricity, which utilities must reduce to achieve the efficiency target while meeting the 2025 alternative energy mandate.
To make this simpler to comprehend, consider the 2008 demand for electricity as being represented by the baseline of 100. As a result of falling demand, today’s number is nearly 80 percent of the 2008 baseline, which could be reduced sharply as a result of demand destruction from the efficiency mandate of 22 percent. Thus, in the dire scenario where electricity demand does not rebound and stays fairly constant over the next 12 years, Ohio’s electricity generation in 2025 could be capped at roughly 60 percent of the 2008 baseline. What this means is a possible energy starvation of the Ohio economy, which would certainly lead to a rationing of electricity – a decision that would ultimately be determined by government bureaucrats and not by the free market.
Moreover, given the fact that 25 percent of generation in 2025 must be met by alternative sources, the available market for coal and other non-qualifying baseload, including nuclear, could shrink to only 38 percent of the 2008 baseline – which is a substantial reduction for the role of coal-fired generation in the state’s electricity mix. In 2011, coal accounted for about 80 percent of Ohio’s electricity generation. If these mandates remain in place and we do not see a surge in electricity demand, we expect coal’s share to fall dramatically as utilities increasingly fuel switch to natural gas and make way for renewables. Thus, within only 12 years, coal-fired generation could nearly be extinguished in the state of Ohio – regardless of EPA regulation of greenhouse gases.
Of course, this may be the worse-case scenario for consumers, but it is a scenario that is quite plausible, nonetheless, and one that is worth consideration by the state legislature. This is why GOP Senator Seitz, Chair of the Public Utilities Committee, has moved forward with Senate Bill 58. Although Seitz’s bill would not repeal the mandates, it would mitigate some of the damage to Ohio’s economy by limiting the costs of the energy efficiency program charged to consumers and by providing greater flexibility on how energy-intensive industries can meet the mandates. However, Republican legislators are blocking progress on this discussion, protecting the back-door tax that kills affordable electricity.
In his recent letter to Ohio Senate President Keith Faber (Republican - District 12), Seitz offered this insightful observation, “The enviro-socialist movement will apparently stop at nothing in its effort to prevent any modifications to the costly and ineffective centralized mandates foisted on Ohio ratepayers…” We agree completely with this assessment and urge the Republican Party in the state of Ohio to abandon bad regulation that will only harm the state’s competitiveness, particularly the poor and the elderly.
With a bleak economy and excess power generation, the price tag to consumers of meeting the mandates will be much greater than what was originally sold to the state by renewable energy lobbyists and environmental activists. Given the dependence of the Ohio economy on energy-intensive industry (which accounts for one third of energy consumption in the state), these mandates will wreak havoc on the state economy, causing companies to relocate to other parts of the country that have not been overtaken by the religiosity of environmental fundamentalism.
Ohio Republicans remain supportive of the imposition of these mandates to gain political credit from the left and other advocates pushing for the end of affordable electricity in the state. At the same time, they openly criticize the EPA for its War on Coal. Given the likelihood that Ohio Republicans are causing more damage to the coal sector than the Obama Administration, we urge the GOP to end its hypocrisy and support consumers. Backing crony capitalists in the renewable energy sector and their radical environmental allies is not good policy or politics for any Republican in the state, and it is an issue that we will keep a close eye on.