Prop 3 Would Cost Taxpayers Billions

(Editor’s Note: The following is excerpted and abridged from the text of a speech delivered by Michael LaFaive, director of the Morey Fiscal Policy Initiative for the Mackinac Center, to various groups around the state about the ballot proposals on the Nov. 6 ballot. We'll post one part each day this week explaining Proposals 1 through 5.)

Monday: Proposal 1 a Referendum on PA 4

Tuesday: Proposal 2: More Power for Government Unions

Today: Proposal 3: '25 X 25' Renewable Energy Standard

A "yes" vote on Proposal 3 would mandate that 25 percent of the electricity sold in Michigan come from renewable resources by 2025. The conservatively estimated cost of meeting this mandate is $12 billion.

Under a Republican-sponsored law passed in 2008, Michigan is already living with a 10 percent by 2015 mandate.

What this increase would mean in practice is between 2,300 and 3,800 of those giant industrial wind turbine towers, located in clusters all over the state. The initiative is being sold as a jobs plan, with one booster claiming more than 94,000 new jobs and “$10 billion in new investments” as a result. This is not the only claim that such a mandate would create gobs of jobs, but such claims are misleading, if not in gross error.

In August, Michigan State University published a paper paid for by the Michigan Environmental Council (an environmentalist group supportive of the amendment) outlining what it perceives are the net benefits of such a mandate. The MEC's press release claimed 74,000-plus jobs would be created through 2025. There are several problems with this claim.

First, that's not actually what the MSU study says. The 74,000 refers to “job years,” because much of the work would be temporary. The MEC treated this number as if they were permanent jobs and bragged about the mandate’s allegedly positive impact.

Second, and perhaps most troubling, the study authors left 100 percent of the costs associated with complying with the mandate out of the calculations. That means the model treated new "investments" in alternative energy as manna from heaven when it is not.

Of course, the study is in fact nothing more than a PR exercise, with MSU’s main contribution giving it a thin veneer of "academic" respectability. The authors wait until the last page of the study to mention that they are measuring gross impacts of the mandate and not net ones. The last page is not where journalists look for key data and such qualifying information was left out of the MEC's aggrandizing press release.

The Mackinac Center's own study, which includes costs and benefits together, estimates a 16.2 percent increase in the cost of electricity and a net decline of 10,500 jobs resulting from passage of Proposal 3.

So what happens in the real world under these wind power mandate regimes? The Institute for Energy Research looked into this and found that electricity costs are 40 percent higher on average in states that have them.

The amendment language also comes with a 1 percent cap on the increase in the cost of utility bills, so where will the money to pay for the mandate come from? It seems there are three basic options: utilities eat their equity (not a likely outcome); find a way to work around the legal cap (arguably a difficult proposition); or the utilities goose legislators for taxpayer funds.

Voting "yes" on Proposal 3 would enshrine an expensive, unworkable and unnecessary mandate in the state constitution. A "no" vote rejects the proposal.

Permission to reprint this blog post in whole or in part is hereby granted, provided that the author (or authors) and the Mackinac Center for Public Policy are properly cited.