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How Defunding the RFS Could Hurt Consumers

July 6, 2015 by AEA Leave a Comment

Before the July 4^th Congressional recess, the House began considering the FY 2016 Interior & Environment appropriations bill. A number of other amendments are awaiting consideration for debate when they return. One such well-intentioned amendment by Rep Loudermilk from Georgia stands out from the pack. His amendment reads:

“None of the funds made available by this Act may be used to implement, administer, or enforce section 211(o) of the Clean Air Act (42 U.S.C. 7545(o)).”

So what does that mean in English? It means the EPA would not be allowed to spend money to work on the Renewable Fuel Standard. At first blush it would seem if this amendment were successful it would be a huge win for American drivers, conservatives, and free market advocates.

Unfortunately, these things are often more complicated than they seem. While this amendment would prohibit EPA from implementing, administering, or enforcing the RFS it does not change the law—and that is the key. The law would remain on the books and industry would still be responsible for meeting the law despite EPA’s limitation of funds.

This could actually lead to worse outcomes for consumers than what the existing landscape provides. While EPA’s administration of the RFS has been a train wreck, sometimes they have at least acknowledged reality and used their waiver authority to reduce the amount of biofuels that must be blended into the fuel supply below the statutory levels. This is good for anyone who buys gasoline.

By contrast, the Loudermilk amendment could harm consumers. If the amendment were to pass then the waiver authority goes away and you can see a situation where citizen suits could force industry to blend biofuels to statutory levels. Mandating biofuels at the statutory levels would be significantly above today’s levels and could result in a breaking of the blend wall, the physical limitation on the amount of ethanol that can be safely blended into gasoline without causing vehicle problems and voiding warranties. At the very least this amendment introduces further uncertainty into the fuel market. Consider the following table of statutory RFS volumes as specified in the Clean Air Act:

EPA has used its waiver authority to propose volumes for 2014 – 2016 that are significantly lower than what Congress called for in the statute. The following table shows EPA’s proposed volumes for 2016 are about 5 billion gallons fewer than the statute.

Eliminating the funds available for EPA to implement the RFS could result in EPA losing its waiver authority. If that happens, mandated volumes could revert back to the statute, forcing Americans to use even more biofuels. This unintended consequence of the Loudermilk amendment would harm American families.

Lastly, it is important to note this is not the same situation as an amendment that prohibits the administration from spending money on something like the “social cost of carbon.” The SCC is not tied to any law passed by Congress so a prohibition amendment is appropriate in this situation. The point here is that Congress needs to be careful when considering funding prohibitions tied to statutory laws, as some will have unintended consequences.

The Loudermilk amendment is well-intentioned, but it appears that it will do more harm than good. If Congress wants to stop the harmful impacts of the RFS then they need to completely repeal the entire program. That is the only solution to this problem. The American Energy Alliance is supporting H.R. 703 by Rep Goodlatte and S. 1584 by Senator Cassidy completely repealing the RFS and we urge all Members of Congress to support these important pieces of legislation.

Filed Under: Blog, Products and Power, Renewable Energy Mandates, Renewable Fuel Standard Tagged With: Amendment, Appropriations, Loudermilk, rfs

EPA’s Disastrous Power Plan in One Minute

July 2, 2015 by AEA Leave a Comment

Boiling down the EPA’s so-called “Clean Power Plan” into a 1 minute video is no small task, but our friends at the Independence Institute did just that.

As they explain, the plan could shut down affordable, reliable power plants in favor of more expensive energy resources. While the EPA claims that CPP will increase public health and expand the economy, recent studies indicate otherwise.

A study commissioned by the National Black Chamber of Commerce found that EPA’s climate rule would increase both black poverty by 23% and Hispanic poverty by 26%, while causing the loss of 7 million jobs for black Americans and 12 million jobs for Hispanic Americans—all by 2035.

Because minorities and working-class Americans spend more of their monthly budget on energy, increases in energy prices could shrink the amount that families can spend on nutritious foods and medicine. The CPP could cause double-digit electricity price increases in 43 states and have severe health consequences.

Even worse, the EPA says the plan may not result in any notable reduction in CO2 emissions. Simply put, EPA’s ballyhooed climate rule will raise electricity prices, force job loss, and increase poverty—potentially to no avail.

Filed Under: Emissions Standards Tagged With: climate change, electricity, EPA

O’Malley Pledges to Power Country on Unicorns and Pixie Dust

July 1, 2015 by AEA Leave a Comment

In an op-ed for the Des Moines Register, presidential candidate Martin O’Malley claims that his “administration would call for 100 percent of our energy to come from renewable sources by 2050.” The former Governor of Maryland and long-shot Democratic hopeful stated “as president, I would use my executive power on day one to declare the transition to a clean energy future the number one priority of our federal government.”

O’Malley’s statement amounts to an empty campaign promise. Not only is it impossible for the U.S. to rely entirely on wind and solar power, but even if it were possible it would be catastrophically expensive. O’Malley’s is the latest in a long line of quixotic predictions over the years about wind and solar power.

The 100% Renewable Myth

The first problem with O’Malley’s promise is that he can’t keep it. Powering our country on 100% renewable energy is neither possible nor desirable. Hydroelectric power, the largest source of renewable energy in the country at about 10%, is a reliable source of electricity, but its use is limited to areas with a steady water supply. Therefore, O’Malley’s plan depends on massively expanding wind and solar production. The problem is that wind and solar are not reliable energy resources. Wind and solar only work when the wind is blowing or the sun is shining—they are inherently unreliable.

Even the meager amounts of wind and solar we use today, about 5% of our electricity use, pose problems for grid reliability. The more wind and solar we force onto the grid, the harder it will be for grid operators to manage the grid, which must be carefully calibrated so supply matches demand precisely at every moment of the day. Volatile spikes in wind and solar production threaten to destabilize the grid, which can lead to blackouts.

For an idea of what it would feel like to live in a world powered 100% by wind energy, click here. Spoiler: it isn’t good.

More Wind, More Problem$

Even if it were possible to run our country on 100% renewable power, we shouldn’t. Natural gas, nuclear, and coal provide 86% of America’s electricity. That’s a good thing, since these sources are abundant, reliable, and affordable. Scrapping these existing sources and replacing them with new renewables, including wind, would be hugely expensive.

As pointed out in a new study by the Institute for Energy Research, electricity from new wind resources is nearly four times more expensive than from existing nuclear and nearly three times more expensive than from existing coal. This will lead to dramatically higher energy costs for American families and harm low-income, minorities, and the elderly the most, forcing these vulnerable populations to make painful tradeoffs between energy and other basic necessities such as food, shelter, and health care. In other words, more mandated wind and solar means more hardship for American families.

The O’Malley–Carter Delusion

O’Malley’s fantasy is not new. In the 1970s, President Jimmy Carter called for massive increases in wind and solar production. He even put solar panels on the roof of the White House, which President Reagan later removed. Consider the following headlines from The Wall Street Journal. The first, from August 1978, predicts that solar power would supply 20% of our electricity by 2000. Today, more than three decades later, solar still supplies less than 1%.

Presidential campaigns are known for over-promising and under-delivering. O’Malley’s pledge to get 100% of our energy from renewable energy is no exception. Except, unlike more vague campaign promises (see “hope and change”), we don’t need to wait four years to figure out we’ve been duped.

Filed Under: Emissions Standards Tagged With: EPA, Martin O'Malley, renewables

What Does It Cost to Fix Something That Isn’t Broken?

July 1, 2015 by AEA 1 Comment

The Obama administration is pursuing an aggressive plan of closing existing power plants and providing large subsidies of wind and solar electricity generation. Because of the administration’s regulations, 90 gigawatts (GW) of coal-generated power are projected to close. The Environmental Protection Agency (EPA) tells us that power bills will go down as a result of its regulations, but a new report by the Institute for Energy Research shows why electricity rates will only skyrocket under the EPA’s agenda.

New Sources Such as Wind and Even New Natural Gas Wind More Costly Than Existing Coal and Nuclear

Attempting to replace existing coal and nuclear generators with expensive new sources, especially unreliable wind and solar, will impose heavy costs on electricity consumers. Yet that is exactly what the Obama administration is trying to do by imposing their regulation of carbon dioxide emissions from existing power plants.

It is only common sense that using our existing resources is much more cost-effective than building new resources that would be required under the EPA’s agenda. However, it has been difficult to put an accurate price tag on these cost differences—until now.

A new report from the Institute for Energy Research, our sister organization, quantifies the costs of existing sources of electricity generation. The main takeaway from the report is below. The chart shows that existing coal, hydro, and nuclear are much, much less expensive than building new plants, even new natural gas plants.

The report compares the levelized cost of electricity from the existing generation fleet (LCOE-Existing), a brand new measure developed by the authors, versus the levelized cost of new generation sources (LCOE-New), a measure commonly used by government and industry. Both measures report the cost of electricity in terms of dollars per megawatt hour (MWh).

Not only are our existing electricity generators low-cost, but these generators could continue to be used for years if federal policies weren’t forcing the retirement of existing power plants.

The cost difference between existing plants and the types of electricity generation the administration is promoting is stark. For instance, the report found that electricity from new wind installations is three times more expensive, on average, than electricity from existing coal-fired generators and four times more expensive than existing nuclear. The report also estimates the cost that unreliable wind power imposes on reliable generators.

The levelized cost of electricity from existing sources is an essential measure that has been absent from debates over the EPA’s regulations and renewable energy policy. The paper’s findings dispel the myth that subsidized wind and solar facilities are cost-competitive replacements for existing power plants that use conventional fuels. Never mind that wind and solar cannot produce electricity on demand—the cost of their intermittent electricity is much more expensive than electricity from existing nuclear, hydro, and coal facilities.

LCOE-Existing: Cost of the Existing Generation Fleet

The authors of the report calculate the levelized cost per MWh of the existing fleet by incorporating reams of historical data on the actual expenses of coal, nuclear, hydroelectric, and gas plants as reported to FERC and EIA. The authors also adjust the EIA’s LCOE (LCOE-New) to accurately reflect the imposed costs associated with low-capacity distributed generation sources such as wind. The existing fleet, according to the report, has a far lower cost than new sources:

The report’s findings reveal that existing power plants can produce low-cost electricity for years to come:

Existing Fleet Far Cheaper Than New Sources. The authors find that “existing coal nuclear and hydroelectric are about one-third of the cost of new wind resources.”
Costs are Lowest at 30 Years. Existing plants have already paid initial transmission costs, and many have retired construction debt and equity obligations, lowering their LCOE substantially. LCOE was lowest for plants at around 30 years of age.
Oldest Plants Still Cheaper Than New Sources. The oldest plants of each generation resource were still less expensive than the LCOE from new plants, despite rising operating costs. The existing fleet could reliably produce electricity over the next decade and beyond at a substantially lower cost than new generation resources.

Conclusion

The belief that new solar and wind generators are cost-competitive with existing conventional plants has served as a justification for forcing renewables onto the power grid. State policies such as Renewable Portfolio Standards and federal policies like the Wind Production Tax Credit and the Clean Power Plan work in tandem to encourage renewables and force existing power plants into early retirement. That means these policies will unambiguously increase the costs of electricity generation.

This is the first report to use data reported to federal agencies to calculate the cost of existing sources of generation. The authors have made a vital contribution to the electricity policy debate in offering this new measure, LCOE-Existing, which allows policymakers to accurately assess the costs and benefits of sweeping changes to America’s electricity generation fleet.

Now that the actual cost of the loss of these plants is known, it is obvious that programs that promote sources such as wind and solar will only increase the price of electricity. As the IER report illuminates, there is no question that these policies will place enormous strain on American families and businesses.

For the full report and a complete explanation of the methodology, see The Levelized Cost of Electricity from Existing Generation Resources.

Filed Under: Emissions Standards Tagged With: coal, electricity, EPA, nuclear, wind

AEA Issues Statement on MATS Ruling

June 29, 2015 by AEA 4 Comments

SCOTUS Slaps EPA for Ignoring the Costs of its Reckless Agenda

WASHINGTON — American Energy Alliance President Thomas Pyle issued the following statement on the Supreme Court’s Mercury and Air Toxics Standard (MATS) ruling:

“Today’s Supreme Court decision is an important step toward reining in the Environmental Protection Agency. For too long EPA has ignored the costs of its regulations, which have become so large that they not only harm the economy, but also the health and welfare of American families.

“The Supreme Court made it clear: EPA can no longer ignore the costs of its reckless agenda. This decision shows that states should resist EPA’s calls to submit plans for the upcoming climate rule, which will impose enormous economic burdens on the American people for little, if any, environmental gain.”

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Filed Under: Press Releases Tagged With: climate, EPA, MATS

BLM Considers Raising Royalty Rates

June 26, 2015 by AEA 3 Comments

The Bureau of Land Management (BLM) announced in April that it is considering raising the royalty rate for oil and natural gas drilled on Federal lands—currently at 12.5 percent of drilling operations’ production value. The Center for American Progress (CAP) recommended that BLM increase the royalty rate for oil and gas drilled on public lands by at least 50 percent and allow regulators to raise the rate further when the price of these fuels is high because they believe U.S. taxpayers “aren’t receiving a fair share from the development of their resources.” But CAP has it wrong. If CAP wanted to increase returns to taxpayers, instead of promoting increases in the rates, they would promote streamlining permitting and bringing common sense to regulation on federal lands in order to increase natural gas and oil production and dramatically increase revenues to the U.S. treasury.

Oil and gas companies prefer to drill on private and state lands instead of federal lands due to permitting delays and massive amounts of red tape on federal lands. On non-federal lands, massive production increases have made the United States the largest producer of oil and natural gas in the world.

Click here to continue reading on IER.

Filed Under: Cartoons Tagged With: BLM, gas, Obama, oil

ICYMI: Half Measures Make Ethanol Mandate Worse

June 25, 2015 by AEA 1 Comment

This week, AEA President Tom Pyle penned an op-ed in Roll Call explaining why a corn-only repeal of the broken Renewable Fuel Standard may actually hurt American families more than the status quo. Pyle lambasts lawmakers’ attempts to re-work an unworkable law, and shows why full repeal is the only way to fix the RFS. Below is the text of the op-ed:

In an effort to show Congress “can work again,” some lawmakers are attempting to make an unworkable law even worse. Recently, several proposals have been floated to “amend” the Renewable Fuel Standard, which requires refiners to blend rising volumes of renewable fuel into gasoline.

Proponents of such bills, including Sens. Patrick J. Toomey, R-Pa., and Dianne Feinstein, D-Calif., would do away with the corn-ethanol mandate but retain the mandate for “advanced” biofuels — products that don’t exist in appreciable, economically viable quantities, if at all.

Lawmakers should reject these half measures. This month, Sen. Bill Cassidy, R-La., introduced legislation to do away with the RFS entirely. This approach addresses the reality that by keeping intact the costly “advanced” mandate, corn-only repeal may actually inflict more harm on American families than the status quo. The only real “reform” to the broken RFS is full repeal.

Congress enacted the RFS in 2005 and expanded it in 2007. The law requires refiners to blend 36 billion gallons of biofuel into the nation’s transportation fuel supply by 2022 — a figure that all agree is unachievable and most would argue unwarranted.

This program was doomed to failure. Under the delusion that “if you mandate an industry, it will come,” Congress and President George W. Bush trusted the Environmental Protection Agency to accurately project and mandate biofuel production nationwide.

Congress’ first mistake was passing the RFS. The error was compounded when lawmakers trusted EPA to implement it in a reasonable fashion. Case in point: in 2010, despite mandating millions of gallons of cellulosic biofuel (fuel derived from inedible plant matter), exactly zero gallons of cellulosic were produced. This “minor inconvenience” didn’t deter EPA. The following year, EPA raised the mandate even higher, but still cellulosic producers mustered up no fuel.

In fact, the EPA has so thoroughly mismanaged the RFS that in 2013 the D.C. Circuit Court ruled the agency’s actions amounted to illegal promotion of cellulosic biofuels. Not to mention that the EPA had, until last month, failed to even propose standards for 2014, in violation of federal law.

Instead of accepting reality, the EPA created a new reality. Faced with the fact that cellulosic biofuels aren’t cost-effective enough to be produced in large quantities, EPA simply changed the definition of “cellulosic” to include things such as compressed natural gas and electricity. Since those cannot physically be blended into gasoline, refiners are forced to purchase credits and pass along those costs to motorists.

Unfortunately, the EPA’s incompetence continues. In May, the agency released its long-delayed mandates for 2014 and beyond, calling on refiners to blend 206 million gallons of cellulosic in 2016—even though cellulosic producers have failed to demonstrate a capacity to produce even 1/206th of that amount (until the EPA changed the definition, of course).

It’s long past time Congress learned its lesson. Removing the implied corn portion but keeping the “advanced” mandate does nothing to stop the EPA’s accounting gimmicks. Instead it transforms the RFS into California’s expensive low-carbon fuel standard, which one study showed could raise the state’s fuel prices by more than $2.50 per gallon.

Partial repeal also, ironically, is worse for corn farmers than full repeal. Corn ethanol is a commercially viable product and a reliable blendstock — in the proper quantity. It doesn’t need the mandate to survive.

Under Toomey-Feinstein, however, corn ethanol loses the war for mandated market share. The mandate for “advanced” biofuel remains untouched, which means it continues to rise and shift the market for ethanol away from corn and toward more costly sources.

The big issue with corn ethanol isn’t commercial viability, but the ethanol lobby’s continued push for higher ethanol blends even though we’ve reached the maximum percent of ethanol most cars can safely handle—the blend wall.

If the last decade has taught us anything, it’s that Congress should never have passed the RFS. Yet proposals short of full repeal only make the mandate worse. The desire to “do something” does not require doing the wrong thing. Congress should fully repeal the RFS and give Americans, not the EPA, the power to choose the fuels they deserve.

Thomas Pyle is president of the American Energy Alliance.

Click here to view the original op-ed.

Filed Under: Renewable Fuel Standard Tagged With: biofuels, EPA, Gasoline, Renewable Fuel Standard

AEA Applauds Gov. Pence for Rejecting EPA Rule

June 24, 2015 by AEA Leave a Comment

WASHINGTON — American Energy Alliance President Thomas Pyle issued the following statement after Indiana Governor Mike Pence rejected EPA’s climate rule:

“We applaud Governor Pence for standing up for Indiana families by rejecting the Environmental Protection Agency’s costly climate rule. This rule is an attempt by President Obama to impose a national cap-and-trade system that he failed to pass democratically when he controlled Congress in 2010. We hope other states join Governors Abbott, Fallin, Walker, and Pence in protecting the rights of their citizens to make their own energy choices.”

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Filed Under: Press Releases Tagged With: clean power plan, EPA, Governor Pence

Wind Lobby Blows Smoke on PTC Elimination Act

June 19, 2015 by AEA 2 Comments

The American Wind Energy Association (AWEA) sent a letter to Congress on June 18 in opposition to the PTC Elimination Act, a bill that would phase out and eventually end a subsidy that has funneled billions of taxpayer dollars into the wind industry over the last two decades. While AWEA claims that the PTC creates competition and benefits the economy, the subsidy stifles innovation and amounts to nothing more than corporate welfare for a mature industry. Below we correct the record on several of AWEA’s misleading claims from the letter:

CLAIM: “Eliminating the renewable energy Production Tax Credit (PTC) as proposed in H.R. 1901 would take away an effective, business tax incentive…”

FACT: This legislation does not “take away” the wind PTC, but rather, it phases out the subsidy over time. In fact, AWEA has supported a phase out in the past. In Dec. 2012, AWEA admitted a “Phase out of wind energy [PTC] would enable U.S. industry to become fully cost-competitive.” That is exactly what this bill would do—wind down wind subsidies over the next decade. It provides short-term certainty to wind developers and protects the long-term interests of taxpayers. AWEA recently supported a phase out and they should do so again.

CLAIM: “Reforming our nation’s tax code is an important national policy priority, but targeting one industry and making retroactive changes to existing law is misguided.”

FACT: If Congress is serious about tax reform, then the PTC is a good place to start. It is an egregious example of corporate welfare that a pro-growth tax reform plan would eliminate. It is poor tax policy to provide a subsidy that encourages the recipient to sell its product at a loss. The subsidy is so generous that wind producers can actually sell their electricity at a loss and still make money. This is called “negative pricing” and this legislation would significantly reduce this effect.

CLAIM: “[T]aking away the PTC and making retroactive tax policy changes would threaten an important economic opportunity for workers and their families.”

FACT: The wind PTC is a net jobs loser. Jobs created by subsidies lead to more jobs being destroyed elsewhere in the economy. One study of Spain’s green energy subsidies found that for every 1 green job created, 2.2 jobs were eliminated elsewhere. That’s because subsidies divert capital from the most economical projects to the most politically favored.

CLAIM: “[T]he value of the PTC flows to consumers in the form of lower electric rates by promoting market competition.”

FACT: The “value” of the PTC actually “flows” to wealthy wind developers at the expense of taxpayers, while making electricity more expensive for families. The PTC creates artificial demand for wind energy, which is much more expensive than other forms of electricity generation. As Warren Buffett has explained, wind energy is not cost competitive without subsidies: “On wind energy, we get a tax credit if we build a lot of wind farms. That’s the only reason to build them. They don’t make sense without the tax credit.” Buffett made it clear that the PTC is most beneficial to hedge funds and wind companies who are able to reduce their tax rate at the expense of all Americans.

CLAIM: “While the wind industry has grown over the years, it still accounts for less than 5% of total electric generation in the U.S. and recent PTC expirations have led to dramatic job losses and shuttered manufacturing facilities.”

FACT: The wind industry frequently complains about how a lack of “certainty” over PTC renewal harms investment in wind projects. This subsidy has existed for over 20 years. Advocates have continually said they just need it for a few more years, always pushing the end date to some uncertain future. This legislation ends the uncertainty associated with continual one-year extensions and puts a firm deadline on a phase out. If the wind industry wants “business certainty,” they should get out of the subsidy business.

Conclusion

Decades of subsidies have discouraged innovation in the wind industry, as companies relied on generous handouts to stay afloat. Even the wind industry has supported a phase out of the subsidy in the past. The PTC Elimination Act winds down the PTC in a reasonable way.

Filed Under: Wind Tagged With: AWEA, PTC Elimination Act, wind ptc

Study: Ohio Energy Mandate Will Cost State Billions

June 18, 2015 by AEA Leave a Comment

A majority of states have Renewable Portfolio Standards (RPS)—energy mandates that require utilities to produce or purchase a certain amount of electricity from renewable sources, such as wind and solar. These costly regulations have detrimental impacts on employment, income, and investment, leading policymakers in several states to take steps to either freeze or eliminate their renewable mandates.

Ohio’s RPS, passed in 2008, requires utility companies to source at least 12.5 percent of their electricity from renewable sources by 2025 (intervening years have lower requirements that build over time). Ohio froze its standard for two years while a committee investigates its economic effects, but a new study from the Institute of Political Economy at Utah State University has found that the RPS will have a resoundingly negative impact on the state’s economy.

Cost of Ohio’s Energy Mandate

Supporters justify renewable mandates by measuring the supposed benefits associated with reducing carbon dioxide emissions, but there is limited data on the costs of these regulations on ratepayers. A new study sheds some light on those costs.

The Institute of Political Economy quantified the cost of Ohio’s RPS on the state economy, finding that, by 2026, the renewable mandate will:

There were 29,366 fewer jobs in Ohio at the end of 2014 than there would have been without the RPS in place.
A family in Ohio made $3,842 less in 2013 than they otherwise would have had the RPS not existed.
Ohio families could potentially face $1.92 billion increase in electricity costs beyond what they would have paid in the absence of an RPS.

Action in Other States

Given the starkly negative economic effects of the RPS, it is unsurprising that other states are taking steps to freeze or repeal their standards, reflecting the growing momentum against these costly regulations.

West Virginia became the first state in the country to fully repeal its RPS in January, and Kansas followed suit in May. Colorado, Texas, and New Mexico have all passed legislation in at least one chamber to revise or repeal their RPS, and legislation has been introduced in North Carolina to freeze its renewable mandate.

Conclusion

In light of the negative impacts highlighted by the Institute of Political Economy’s study, Ohio’s lawmakers should follow through with a full repeal of its RPS. The costs of RPS on state economies far outweigh their ambiguous benefits, and all states should reconsider renewable mandates before the worst of the economic damage sets in.

Filed Under: Renewable Energy Mandates Tagged With: electricity, ohio, renewable energy mandate, renewable portfolio standard