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Research & Commentary: New Study Shows Excessive Costs CEPP Would Have on Arizonans

October 28, 2021

Plan Would Cost $119 Billion Through 2052, $1,200 Per Customer

The Center of the American Experiment has released a new study detailing the massive costs to Arizonans of the Clean Electricity Performance Program (CEPP), a “de facto renewable energy mandate and carbon tax in the United States.”

The report, High Cost of CEPP in Arizona, shows how CEPP, being advanced by Congressional Democrats as one part of the $3.5 trillion reconciliation package, is “one of the most sweeping energy proposals in American history,” and would require electric companies to increase the amount of “clean” energy they generate by 4 percent each year, relative to the previous year. CEPP would do this through a carrot-and-the-stick approach, paying these companies $150 per megawatt hour (MWh) of “clean” electricity generated if these 4 percent mandates are met, while fining them $40 per MWh generated if they do not meet them.

In Arizona, the report estimates that changing the electric grid to meet these requirements would result in $119.4 billion in additional costs through 2052, or more than $1,200 per customer, per year over the same time period, with a cumulative total of $36,000 per customer. Industrial customers, as large consumers of electricity, would see their electricity bills rise by over $35,000 annually through 2052.

Costs would rise because, currently, expensive so-called “clean” energy sources like solar and wind only make up 6 percent of Arizona’s electricity generation (5 percent solar and 1 percent wind), and would need to rise to 45 percent (38 percent solar and 7 percent wind) by 2031 to meet CEPP mandates. Costs in building the transmission lines to bring these new facilities online would cost an additional $3.3 billion.

“CEPP compliance costs are driven by the need to build enough solar panels, wind turbines, battery storage facilities, and transmission lines to meet the carbon-dioxide-free electricity requirements in the program,” the report states. “Other factors that increase costs include increasing property taxes, utility returns, and maintaining the reliable power plants needed to provide electricity when the sun is not shining and the wind is not blowing. These are referred to as “load balancing” costs and they are often ignored.”

Further, “this study does not quantify the additional costs associated with rising levels of electrification because it is designed to show the difference in cost to serve the same amount of electricity demand as the current grid, providing an apples-to-apples comparison of the cost of electricity in Arizona with, and without, the CEPP.”

The stated purpose of CEPP is to help lower carbon-dioxide emissions, and it is estimated the plan would indeed lower emissions by roughly 25.3 million metric tons annually through 2031. However, the cost of doing so would be roughly $130 per ton through 2031, making it 182 percent more costly than the social cost of carbon estimated by the Interagency Working Group set up by the Obama administration, which was roughly $46 per ton for 2020. (It should be noted that whether there is a “social cost” to carbon-dioxide emissions at all is debatable.)

“While proponents claim the CEPP is needed to reduce carbon-dioxide emissions,” the report concludes, “the costs of implementing the plan dramatically outweigh the benefits. The CEPP itself is more harmful to Arizona families and the state’s economy than the carbon-dioxide emissions it aims to reduce.”

CEPP is simply bad news for Arizona families and businesses. The plan will be, in practice, a regressive tax, with low-income families and seniors on fixed incomes bearing the brunt of it. More money spent on electricity bills means less money families will have for rent, a down payment on a house, clothes, food, school tuition, not to mention savings for retirement. Higher prices for Arizona businesses and industries mean higher prices on goods and services. Arizona legislators should use whatever influence they have to push back hard on this proposal. What’s more, to truly help working families, they should also seek to repeal the state’s Renewable Energy Standard mandate at the earliest possibility.

The following documents provide more information on CEPP, carbon-dioxide taxes, and renewable energy mandates.

High Cost of CEPP in Arizona
https://files.americanexperiment.org/wp-content/uploads/2021/10/High-Cost-of-CEPP-in-Arizona-Orr-and-Rolling.pdf
This study from the Center of the American Experiment argues that achieving the goals set forward by the Clean Electricity Performance Program advanced by Congressional Democrats would cost an additional $119.4 billion (in constant 2021 dollars) in the state of Arizona, compared to operating the current electric grid. This would result in a 45 percent increase in electricity prices by 2031, compared to 2019 rates. If borne by residential, commercial, and industrial electricity customers in Arizona, rather than federal taxpayers, the additional costs imposed by the CEPP would be more than $1,200 per customer, per year through 2052.

Do Renewable Portfolio Standards Deliver?
https://bfi.uchicago.edu/wp-content/uploads/2019/05/BFI_WP_201962.pdf
This working paper from the Energy Policy Institute at the University of Chicago finds that average retail electricity prices in states after the passage of a renewable energy mandate are 11 percent higher after seven years and 17 percent higher after a dozen years, even though the increase in renewable electricity generation is a minimal 2.2 percent to 5 percent.

The 100 Percent Renewable Energy Myth
https://www.instituteforenergyresearch.org/wp-content/uploads/2019/02/Renewable-Myth-Policy-Brief219.pdf
This Policy Brief from the Institute for Energy Research argues that a countrywide 100 percent renewable plan would put the U.S. economy in jeopardy. The brief investigates the intermittency, land requirements, capacity factors, and cost of transition and construction materials that limit the ability of the U.S. to adapt to 100 percent renewable energy.

Evaluating the Costs and Benefits of Renewable Portfolio Standards
https://www.heartland.org/publications-resources/publications/evaluating-the-costs-and-benefits-of-renewable-portfolio-standards?source=policybot
This paper by Timothy J. Considine, a distinguished professor of energy economics at the School of Energy Resources and the Department of Economics and Finance at the University of Wyoming, examines the renewable portfolio standards (RPS) of 12 different states and concludes while RPS investments stimulate economic activity, the negative economic impacts associated with higher electricity prices offset the claimed economic advantages of these RPS investments.

Legislating Energy Poverty: A Case Study of How California’s and New York’s Climate Change Policies Are Increasing Energy Costs and Hurting the Economy
https://www.pacificresearch.org/wp-content/uploads/2018/12/LegislatingEnergy_F_Web.pdf
This analysis from Wayne Winegarden of the Pacific Research Institute shows the big government approach to fighting climate change taken by California and New York hits working class and minority communities the hardest. The paper reviews the impact of global warming policies adopted in California and New York, such as unrealistic renewable energy goals, strict low carbon fuel standards, and costly subsidies for buying higher-priced electric cars and installing solar panels. The report’s authors found that collectively these expensive and burdensome policies are dramatically increasing the energy burdens of their respective state residents.

The U.S. Leads the World in Clean Air: The Case for Environmental Optimism
https://files.texaspolicy.com/uploads/2018/11/27165514/2018-11-RR-US-Leads-the-World-in-Clean-Air-ACEE-White.pdf
This paper from the Texas Public Policy Foundation examines how the United States achieved robust economic growth while dramatically reducing emissions of air pollutants. The paper states that these achievements should be celebrated as a public policy success story, but instead the prevailing narrative among political and environmental leaders is one of environmental decline that can only be reversed with a more stringent regulatory approach. The paper urges for the data to be considered and applied to the narrative.

Climate Change Reconsidered II: Fossil Fuels – Summary for Policymakers
https://www.heartland.org/publications-resources/publications/climate-change-reconsidered-ii-fossil-fuels---summary-for-policymakers
In this fifth volume of the Climate Change Reconsidered series, 117 scientists, economists, and other experts assess the costs and benefits of the use of fossil fuels by reviewing scientific and economic literature on organic chemistry, climate science, public health, economic history, human security, and theoretical studies based on integrated assessment models (IAMs) and cost-benefit analysis (CBA).

The Social Benefits of Fossil Fuels
https://www.heartland.org/publications-resources/publications/the-social-benefits-of-fossil-fuels
This Heartland Policy Brief by Joseph Bast and Peter Ferrara documents the many benefits from the historic and still ongoing use of fossil fuels. Fossil fuels are lifting billions of people out of poverty, reducing all the negative effects of poverty on human health, and vastly improving human well-being and safety by powering labor-saving and life-protecting technologies, such as air conditioning, modern medicine, and cars and trucks. They are dramatically increasing the quantity of food humans produce and improving the reliability of the food supply, directly benefiting human health. Further, fossil fuel emissions are possibly contributing to a “Greening of the Earth,” benefiting all the plants and wildlife on the planet.

 

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this subject, visit Environment & Climate News, The Heartland Institute’s website, and PolicyBot, Heartland’s free online research database.

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