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The Consumer Stake in Energy Policy

The debate on climate change is over. Congress is addressing it by writing broad, sweeping energy and climate policy, but before they take this too far, they need to find out how these policies will directly impact consumers. Our nation and its many constituencies have a right to know.

The bill that passed out of the entire US House on a very close vote includes a combination of energy policies: a federal renewable energy standard (RES), cap and trade, regulatory standards for new power plants and a new federal gasoline standard. Each of these policies will increase consumer costs. For example, last year the EPA found that if we enact cap and trade, energy prices could rise by 44 percent by 2030.

Under a federal RES, states like Virginia, which rely heavily on more traditional and reliable energy sources, may not be able meet a stringent standard and would then be required to purchase energy credits from other states who have excess credits, like California or Massachusetts. This transfer of wealth will drive up energy costs for consumers and businesses in the form of higher energy bills.

An Energy Information Administration report in 2008 found that Virginia currently produces just over 2 percent of its energy from the renewable sources as defined by Congress in the current legislation. If adopted by the Senate, the Waxman Markey legislation will force Virginia to increase its renewable energy production nearly ten times in the next six years, or be forced to purchase renewable energy at a premium from other states that have a surplus. Producing that level of renewable energy under those time constraints is nearly impossible, especially when Virginia’s carbon free nuclear power, which currently accounts for nearly a third of the electric generation in the state, is not included in the standard. Consequently, Virginia businesses will be sending capital out of the local economy to other states, ultimately the consumer will pay.

However, the total cost of the draft legislation is unknown. We’ve never analyzed the cost of enacting all of these policies at once, and the cost projection data we have is dated and speculative. Congress may be in a hurry to move forward with this bill, but consumers deserve to know how it will affect them before such sweeping legislation is enacted.

One thing we do know is that residential consumers, businesses, hospitals and schools, whether they are in Northern Virginia or down in Hampton Roads all depend on reliable and affordable electric power. All of these groups will be saddled with increased energy costs if this proposal is passed.

Virginians will be affected disproportionately. The Oak Ridge National Laboratory reported that consumers in the South and Midwest will incur prices increases that double those of lower-income consumers in the Northeast and West – a direct result of their limited renewable resources and coal-dependence.

According to the Congressional Budget Office, “Higher-income households would face larger costs in dollar amounts, but those costs would make up a smaller share of their average annual income.” However, as minority households earn less on average than white households, they will be more heavily impacted, as will the elderly as they too spend a higher share of their income on energy.

Increased energy costs will also affect businesses, hospitals and schools across Virginia. For example, the EPA found that hospitals “use twice as much energy … as do office buildings.” Increased energy costs also directly affect school budgets, and could force struggling businesses to close. These increases will also be felt by one million or more black owned businesses in this nation and the 41,302 black owned businesses in Virginia according to the US Census.
The Virginia General Assembly already took many of those cost considerations into account when they went the route of adopting a state renewable portfolio goal in 2007.  The General Assembly examined the resources available in the Commonwealth and created a goal to encourage utilities to incorporate Virginia specific renewable sources into the electric generation mix.

Congress should similarly act by running their draft proposal through a rigorous cost analysis. They should also abandon an expensive RES mandate. After all, other mandates, such as the ethanol mandate, only raise prices for consumers, and if refiners and utilities are already under a carbon cap, an RES makes little sense.

The most important action Congress should take is to make the cost impacts of this bill transparent to consumers. Energy cost information should appear on consumer statements and made available to consumer groups and the media. Government is not the only energy stakeholder; we must educate consumers if we want to create effective climate policy.

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