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Revisiting the Keystone State

Rate caps have squelched competition in Pennsylvania.

Fortnightly Magazine - July 2008

this void and adopted policies intended to lower emissions of carbon dioxide and other greenhouse gases. Pennsylvania is among a group of roughly half the states that have passed laws mandating that specific percentages of the electricity consumed in the state must come from renewable energy sources, such as wind and solar. Pennsylvania law requires that by 2020, 18 percent of electricity consumed in the Commonwealth must come from “alternative energy” sources, a term that includes renewable sources and waste coal plants. 8

Some lawmakers in Pennsylvania want to go further. Among the ideas that have been proposed are increasing the required percentages of renewable energy in the portfolio standards law, requiring that all increases in the demand for electricity be met with renewable energy or conservation, and encouraging utilities to rely heavily upon long term contracts with alternative energy suppliers to provide default supply service to non-shopping customers.

It’s questionable whether these proposals constitute wise energy policy or effective environmental policy. First, climate change is a global problem that requires a global solution. Actions by individual states intended to reduce carbon emissions will not have a material impact on the earth’s climate without effective national and international policies. In particular, emerging economies such as China and India, which have been adding significant amounts of coal-fired generation in recent years, must be brought into a global strategy to reduce carbon emissions.

Only the federal government can adopt an effective national strategy and negotiate with other countries to assure that they do the same. A change in federal policy seems likely within the next few years since the remaining candidates for U.S. president all support federal legislation to limit carbon emissions.

Second, even if one views combating climate change as a moral imperative, the most cost-effective means to achieve this goal is likely to be one that relies on markets rather than government mandates to pick technologies to lower carbon emissions. The chief role of government should be to support research and development for a broad range of technologies, including renewable energy and carbon sequestration at coal-fired plants. The latter is particularly important in light of our country’s abundant coal reserves.

Renewable energy has positive attributes—it is emission free and has no fuel costs. It is likely to be one component of an optimum mix of technologies necessary to address climate change. 9 But state policymakers are overstating the case for renewable energy when they portray it as the primary solution to climate change. Wind and solar are intermittent sources—they generate electricity when the wind blows and the sun shines. Thus, they require significant amounts of backup generation to ensure reliable service. These intermittent sources may supplement, but not supplant, generation technologies that operate around-the-clock and can be dispatched more reliably. Mandating ever-greater reliance on renewable energy is unwise until the reliability and cost impacts of these technologies are better understood. 10

Finally, some policies under consideration before the Pennsylvania legislature could serve both environmental and economic goals if they work as intended. Many legislators support establishing a schedule to provide advanced meters