Positive Impact of Renewable Energy on State Economies

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In 2003, the Council of State Governments touted renewable electricity standards, also known as renewable portfolio standards, as an economic development tool states should seriously consider. This article is a synopsis of CSG's report.

Excerpts from: “Renewable Energy and State Economies”, by Barry Hopkins, Trends Alert, May 2003.

POSITIVE IMPACT OF RENEWABLE ENERGY ON STATE ECONOMIES

In addition to developing energy security, improving environmental conditions and public health, and controlling consumer energy costs, renewable energy sources can help spur economic development in just about every area of the United States. Since all states have some form of developable renewable resources, such as, biomass, geothermal, hydrogen, solar and wind, developing these resources will benefit the states by:

  1. Stimulating local economies and creating jobs;
  2. Increasing state and local tax revenue bases;
  3. Providing environmental and public health benefits;
  4. Allowing states to better control consumer energy costs;
  5. Reducing dependence on foreign oil; and,
  6. Enhancing domestic energy security and increasing generation reliability.

The Beginning of Interest in Renewable Energy Sources
Renewable energy sources hold many potential benefits for society, especially given their properties and the fact they are continually replenished by nature. Biomass energy is generated from organic material. Geothermal energy is produced using heat sources found within the earth. Hydrogen energy is generated through the combustion of hydrogen. Solar energy is produced using energy from the heat and light of the sun. And wind energy is produced using the power from moving air.

For several decades, interest in renewable energy resources, especially as a source for generating electricity, has been growing. Several domestic trends that were the outcome of a confluence of factors, some dating back to the 70’s, have resulted in support for renewable energy. Those trends were:

  1. Environmental consciousness deeming environmental regulation covering electricity generation inadequate;
  2. U.S. support for Israel in the Arab-Israeli War in 1973 leading to the Arab oil embargo against the U.S.;
  3. The coup in Iran in 1979;
  4. The partial meltdown of the nuclear power plant at Three Mile Island.

This confluence of events fueled a sense of crisis that had been building in the U.S. with respect to the country’s energy supply. Increased costs for fossil-fueled energy supplies, rising environmental concerns, the threat of supply disruptions stemming from foreign countries, and the reinforced concerns related to possible nuclear catastrophes, all coalesced to provide the grounds for the real birth of renewable energy and the technologies that enable its production.

In the 1980’s, the conversion of renewable energy resources was further fueled by federal and private investment in renewable technologies, improved efforts at selecting appropriate sources and siting production facilities, and lowered costs relating to manufacturing and operations. As a result, the costs of producing electricity from renewable resources dropped the difference between conventional and renewable resources diminished and the potential was seen for renewables to emerge as a viable, competitive energy source that could help alleviate the problems associated with energy costs, supply disruptions and environmental concerns.

The Motivation for Continued Development of Renewable Energy
Concerns about the environment, public health, energy security and price volatility continue to be motivating factors for the growth of renewable energy. Renewable energy sources have the ability to reduce pollution that results from burning fossil fuels. The debate over air pollution from vehicles is evident, but fewer people are aware that the generation and use of electricity produced from fossil fuels typically lowers air quality. In the U.S., approximately 52% of electricity is generated by coal and 17% by natural gas, and both are a source of harmful emissions when used to generate power. Electricity generation alone accounts for more than 40% of all U.S. carbon emissions, 26% of smog-producing nitrogen oxide emissions, 33% of mercury emissions and 64% of acid rain produced sulfur-dioxide emissions. Renewable energy sources, including wind, biomass, hydrogen fuel cells and solar power, are a much cleaner form of energy production than burning fossil fuels and emit very few, if any, harmful emissions.

Energy security, another factor that contributed to the original emergence of renewable energy, has reemerged as a current concern that increased renewable energy development could help alleviate. Foreign oil dependence has resurfaced as a concern that carries significant political and economic risks for the U.S. The potential for disruption exists as the U.S. depends on foreign countries, including mainly, Saudi Arabia, Venezuela and Mexico, for approximately 54% of its oil. Therefore, the potential for disruption exists for significant damage to the U.S. economy.

In addition to possible disruptions that could result from foreign oil dependence, significant security risks are present in many of the country’s domestic energy systems. These systems, which provide for the transport, storage and production of energy resources, include the electricity transmission grid, pipelines, hydropower dams, nuclear power plants, refineries and fuel tankers. Much of the U.S. energy infrastructure is extremely vulnerable.

While the current energy system cannot be changed instantly, renewable energy sources can be employed in a manner that avoids compounding the problem. Renewable energy systems are smaller, more dispersed, and less prone to disruption than conventional electricity systems. Renewable energy sources are continuously replenished by inexhaustible resources, not only can they contribute to energy security, but by being more predictable and in abundant supply, they can also help stabilize energy costs and free consumers from the volatile price swings that exist in the natural gas and oil markets due to supply and demand issues. Technological improvements and federal production incentives have made the cost of electricity produced from some renewable sources, such as wind energy, more cost competitive compared to generating power from conventional sources, such as coal and natural gas. Additionally, all renewable sources continue to become more cost-competitive.

Finally, and most recently, the growth of renewable energy sources has progressed through several different types of state policies and programs. Two of the most popular and powerful initiatives states have employed to promote renewables are Public Benefit Funds (PBF) and Renewable Portfolio Standards (RPS). Public Benefit Funds, also referred to as system benefit charges, are state-level programs developed through the electric utility restructuring process as a measure to assure continued support for a wide array of renewable energy resources and energy efficiency initiatives. Currently 15 states have some form of renewable energy fund to support cleaner energy alternatives, including wind, geothermal, solar energy, fuel cells and biomass. Renewable Portfolio Standards require a certain percentage of a utility’s overall or new generating capacity or energy sales must be derived from renewable resources. Currently 15 states have some form of Renewable Portfolio Standard or renewable portfolio goal. Of the 12 that have enacted Renewable Portfolio Standards into law, it is estimated that by 2012, more than 12,400 megawatts will be provided by renewable power sources.

Determining the Next Move
Renewable energy holds many potential benefits for states. Through developing renewable resources, states have the ability to reduce air pollution, protect customers from volatile energy prices, enhance energy security and independence, and stimulate economic development. The costs of renewable energy production have been steadily decreasing throughout recent decades and the potential economic benefits have influenced many states’ expansion and development of renewable resources.

Many policy options exist that states can use to expand and encourage development of their renewable energy resources. And many states have used not just one, but a combination of these measures to help develop and nurture their renewable energy sectors. This is important to recognize, because there is no single solution available to states to encourage renewable energy growth. States must consider their own unique circumstances and available resources to enact an effective renewable energy policy.

To date, renewable portfolio standards and public benefit funds have been most successful for states that have employed them. Well-designed renewable portfolio standards require mandatory levels of renewable energy production, providing for creation and stimulation of a renewable sector, yet allowing market forces to guide the development and resource choices of the market. Public Benefit Funds have been successful in providing states with money to promote and develop their renewable sectors. Through these funds, several states have raised significant amounts of money to fund noteworthy renewable energy activity. Renewable Portfolio Standards and Public Benefit Funds could be adapted to the needs of almost any state. States should seriously consider these two options when looking to develop their renewable energy sectors.

Through the development of renewable energy resources, not only do states have the ability to gain significant social benefits but also, more importantly, in this current period of tight state budgets and slow economic growth, states have the ability to stimulate their economies. Renewable energy development has the potential to directly affect local economies through the creation of jobs, production and purchase of goods and services, and the generation of land use revenue and taxes. Therefore, states should take advantage of this potential and attempt to include renewable energy development into their future state energy plans.

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