Free money everywhere: the pretense on which Washington state’s energy policy is based
Reading reports on Washington state’s energy policy over the last two weeks, there is a consistent theme that emerges: policymakers think there is a lot of free money laying around.
Three statements regarding local, state, and federal projects demonstrate that the state’s energy policy writers assume someone else will pay for their policy decisions.
For example, the King County Solid Waste Division announced the construction of solar panels at its transfer station on Vashon Island. I asked for the cost of installing the panels. They responded, “With regard to the Vashon Transfer Station solar array, the total cost for purchase and installation was $553,641. King County is set to receive a grant of $185,972 from the Washington State Department of Commerce to offset approximately 33% of the total cost.”
Based on the cost of installation (not including maintenance) and expected energy production, that calculates to about 13 cents per kilowatt-hour for electricity from the panels. That amount is about 40% more than the rate the county currently pays to get CO2-free electricity at the site. For the purposes of county policymakers, however, the cost is one-third lower because state taxpayers – as purportedly distinct from King County taxpayers – are footing the bill.
Rather than assessing the true cost of installing the solar panels, and more environmentally effective alternatives, the presence of state incentives (i.e. free money) encouraged a policy that was more expensive and is likely to yield very small environmental benefits.
Washington State Department of Commerce
The same logic appears in the recently released analysis from the Washington State Department of Commerce regarding electrification of buildings.
The study from Energy+Environmental Economics notes, “Ratepayer funds from electrification will likely NOT be sufficient to subsize [sic] the incremental costs of electrification retrofits, as discussed above. To make electrification cost effective and to incentivize market transformation, other sources of funds are needed in addition to ratepayer funds.”
Put another way, the policy itself is so expensive that without subsidies from taxpayers, building electrification doesn’t make sense financially.
Snake River Dams
Finally, the taxpayer-funded study on destroying the four Lower Snake River dams indicates the cost impact to electricity might be so large that federal taxpayers would have to pay the price. Using the Tacoma PUD as an example, the report indicates, “if the replacement costs are funded by ratepayers, projected rate increases range from 10% if the replacement portfolio costs…to over 25%,” the study says, “Another factor that needs to be addressed is who pays for the replacement portfolio, regional ratepayers or the federal government, i.e., the nation’s taxpayers.” Again, the decision is influenced by subsidies that are expected to be paid, ostensibly, by others.
There are several problems with this mindset. In many cases, like King County using subsidies from Washington state, the money comes from the same people. We shouldn’t pretend that money from someone’s left pocket of county taxes and the right pocket of state taxes are somehow different.
Second, the notion that having federal taxpayers pay for something absolves us of paying at the state or local level, is silly. Pretending that people in Alabama are “paying” for our overpriced electricity ignores that, by the same logic, we are “paying” for projects in Alabama and elsewhere. It leads to a perverse mindset where Washington state residents are trying to milk the rest of the country to pay more for our projects than we pay for theirs. This is a corrosive, misleading, and predatory approach to policy.
Policies that don’t account for all costs are unlikely to be sound. Installing solar panels in Western Washington is likely to be far more expensive than simply purchasing CO2-free electricity from the grid. Having the federal government spend billions to subsidize increased electricity rates after destroying four dams, rather than directly for salmon recovery projects, is a questionable decision. If the governor assumes someone else will pay all or part of the cost of destroying the dams, how to maximize the political benefits of the decision plays an outsized role.
Those who support such subsidies argue that they are intended to skew the cost calculus in favor of certain policies and account for environmental or other benefits that may not show up in a traditional cost analysis. But the free money being offered is not based on a rational assessment of environmental costs and doesn’t allow policymakers the flexibility to use the funding most effectively. If King County had decided the $185,972 could have purchased more CO2-free electricity from the grid, the state simply would not have provided the funding. Subsidies rarely accurately reflect environmental costs or provide the opportunity to maximize environmental benefits. They merely force local decision-makers to do what politicians want, rational or not.
Pretending there is free money elsewhere skews the balance sheet, making decisions more political, more expensive, and less rational. That irrational mindset is evident throughout the state’s energy policy discussion. A better approach is to base decision on what energy and environmental policies yield the most benefits for the cost.