A national energy plan proposed last week by President Obama could have a paradoxical impact on the nation’s energy bills. It is likely to raise electricity prices by forcing utilities to use certain sources of energy, but it could lower energy bills by offering people incentives to reduce the amount of electricity they consume.
According to an outline supplied by the White House, the energy plan would include a clean energy standards that would require that the United States get 80 percent of its energy from “clean” sources by 2035. These would include renewable sources such as wind and solar, nuclear and natural-gas plants, and coal plants that capture and store the carbon dioxide they produce. Currently about 40 percent of U.S. electricity comes from such sources.
The standard is an alternative to the climate and energy legislation that passed the House in 2009 but failed to pass the Senate last year. That legislation included a cap-and-trade system, limiting the total carbon-dioxide emissions from most sources but leaving it up to emitters whether to achieve the goal by switching to cleaner energy, promoting energy efficiency, or buying emissions credits from others.
In general, economists prefer cap-and-trade to clean-energy standards because it gives emitters more options for reducing their emissions, allowing them to choose the methods with the lowest costs. However, some economists say that in theory it’s possible to design a clean-energy standard so that it approaches the flexibility of a cap-and-trade system. “To the extent that the mandate says ‘I don’t care how you get there,’ then they come pretty close,” says Wallace Tyner, professor of agricultural economics at Purdue University.