SBE Council Small Business Fact of the Week

Doable Renewable?

Elected officials just love telling consumers and businesses what to do.  Unfortunately, when politics override decisions made by hundreds of millions of people and firms in the marketplace, costs inevitably increase.

That's the path Congress is heading down right now in terms of energy legislation, even as consumers and small businesses face high energy costs.

Consider the renewable fuels mandate included in energy legislation that just passed the House of Representatives. Under this proposal, electric utilities will have to produce more than 15% of electricity from renewable sources by 2020.

But is this feasible given the costs and status of technology?  And why is the government involved in trying to control energy markets?

Let's look at what's gone on in recent times.  The federal government and many states have long provided subsidies for renewable energy.  What's been the result? Let's compare 1990 and 2006, for example.

US Total Energy Consumption by Source:

Percent of Total Consumption

(as measured in quadrillion Btu)

          Total Fossil Fuels     Total Nuclear Energy     Total Renewables    Solar    Wind

1990       85.5%                         7.2%                         7.3%             0.70%    0.03%

2006       85.6%                         8.2%                         6.6%             0.07%    0.26% 

US Electricity Net Generation by Source:

Percent of Total Consumption

(as measured in kilowatthours)

            Total Fossil Fuels     Total Nuclear    Total Renewables    Hydro    Wind    Solar

1990            69.2%                    19.0%              11.8%            9.6%     0.09%   0.01%

2006            70.9%                    19.4%               9.5%             7.1%     0.60%   0.01%                 

Well, with massive taxpayer subsidies year after year, renewables' shares actually declined - in terms of both total energy consumption and electricity net generation. 

It also should be kept in mind that, as The Wall Street Journal noted on August 6, "New hydroelectric facilities would count toward that [renewables 15%] target, but not necessarily existing hydroelectric plants." So, factoring out current hydroelectric power, other renewables accounted for a mere 2.4% of net electricity generation in 2006.  That would have to rise by more than six-fold to meet this congressional mandate over the next fourteen years. But again, over the past 16 years, renewables have declined as a share of net generation.

Congress needs to stop with mandates and subsidies on the renewables front, and let the market work.  Prices, profits, consumer and business demands, innovation, invention and private investment should guide energy markets - in terms of fossil fuel, nuclear and renewable sources - not politics driven by special interest pressures and preferences.  Congress can help by removing governmental obstacles, such as burdensome taxes, regulations and mandates, and let the market work.

Raymond J. Keating, Chief Economist

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