Senseless Energy Policy in the Land of Enchantment

This commentary addresses the grave problem of energy policies originating from a political or quasi-religious agenda propelled by climate zealots, misinformation, and obliviousness to basic economic principles. Such a policy is inescapably destined to jeopardize the public to benefit special interests. Appeasing competing special interests at the expense of the general public has been the hallmark of past government-driven energy policies.

While this commentary focuses on New Mexico, its urgings apply to other jurisdictions that currently have or are considering energy policies featuring mandates, subsidies, and distrust of markets. These policies encourage consumers to transition away from fossil fuels and jeopardize the economic efficiency of the energy market. 

Hard Truths

Three truths should drive energy policy in New Mexico. 

The first truth is that whatever action New Mexico takes to reduce greenhouse gas (GHG) emissions has a negligible effect on climate change. Even what California does has no measurable impact. Also, by the way, as noted by one analyst, “[T]he entire Paris agreement, if implemented immediately and enforced strictly, would reduce global temperatures by 0.17 degrees C by 2100, under assumptions that exaggerate the effects of reduced greenhouse gas emissions.” This is what the science shows, verified by complex climate models. 

One reality is that any consequential effect on climate change requires international cooperation by both developed and developing countries (think of China and India). Aggravating this problem is the fact that those countries with the most to gain from controlling climate change have the least financial capacity to do so. As a rule, growth-oriented (mainly developing) economies will relegate climate change to the back burner. This has been a decades-long experience so far. 

The second truth is that New Mexico’s clean energy policy, like the Energy Transition Act (ETA) and the electric vehicle (EV) mandates, along with other state and local actions to shrink GHG emissions, inevitably drives up energy prices for New Mexicans. The ETA, which became law in March 2019, requires among other things that generation technologies be 50% renewable by 2030, 80% by 2040, and 100% carbon-free by mid-century. 

It is understandable why environmentalists support the ETA, but so does New Mexico’s largest electric utility (Public Service of New Mexico or PNM). The law pretty much guarantees that utilities recover their stranded costs from retiring their fossil fuel plants earlier if they comply with the act.

The losers from this bootleggers-and-Baptists coalition are energy consumers. The ETA has created a “moral hazard” environment: utilities face no financial risk for complying with costs imposed by the law. One can then portray the ETA as a Faustian bargain. 

The third truth follows from the first two: New Mexico’s clean energy policy miserably fails a cost-benefit test, especially when subsidies like tax credits for EVs and mandates favoring renewable energy and specific technologies are significant features. Consequently, we should expect a decline in the state’s economic growth, in addition to imposing a disparate burden on low-income households (higher energy prices generally are regressive) and hurting energy consumers in general. 

Specious Reasons for Promoting Clean Energy 

New Mexico’s energy policy relegates cost-benefit analysis, sensible economic principles, and sound public policy to a subordinate, if not nonexistent, role. More than anything, this policy descends from the quasi-religious conviction that society must reduce GHG emissions drastically or it will inescapably face future catastrophes (a “chicken little” mentality, if you will). We can, therefore, brand New Mexico’s energy policy as a “climate first” or anti-fossil fuel agenda that subordinates energy consumers’ interests to the fictitious benefits of clean energy. 

One can safely say that both the media and climate activists are misusing science to advance their separate agendas, like selling newspapers, eradicating fossil fuels, and advancing an ideology. The hysteria (“climate change is the greatest crisis our world has ever faced; we can’t spend too much, too soon to mitigate this problem”) triggered by this misinformation has led to misguided and highly costly energy policies throughout the world, including in New Mexico. 

It is understandable why the public has become increasingly disenchanted with climate fanaticism. Behind clean energy policies is the belief that consumers can’t be trusted to behave rationally or in a socially desirable way. New Mexico’s EV mandate, for example, forces consumers to do something they otherwise would not do. On November 16, 2023, the Governor’s appointed Environmental Improvement Board adopted a stringent clean car rule that requires 82% of all new vehicles delivered to the state to be zero-emission by 2032. By reducing options for vehicle owners, driving will become more expensive in New Mexico. Also disturbing is that subsidizing EVs will disproportionately benefit middle- and upper-income households over low-income households. 

Perhaps the oddest part of the state’s EV agenda is that it hopes to trim the number of gasoline/diesel-powered vehicles in the state without knowing whether that is what the citizens of New Mexico want. The agenda is telling New Mexicans that the government knows better what types of vehicles New Mexicans should purchase than they do, ignoring the wishes of the citizenry in the process. Car owners are rightly wary of EVs because of high upfront costs, limited range, and people’s inherent skepticism of new technologies. 

Subsidies for energy efficiency (EE), a major piece of the state’s energy policy funded by utility customers and taxpayers, presume that energy consumers are irrational and uninformed about the benefits of EE. The concept that markets are less than perfect should not assume that intervention in the form of utility subsidies or government mandates benefits society. One of the significant errors in government actions starts with the premise that since markets are not perfect, the government should intervene. Often, such intervention results in a higher cost to society than the benefits received: what some call “government failure.” 

The Perils of a Clean Energy Agenda 

Most regions in the U.S. have an abundance of fossil fuels at affordable prices, which explains why over 80% of the world’s energy still comes from fossil fuels. This raises the question of whether states like New Mexico want to or can wean themselves from fossil fuels over the next two or three decades without suffering severe economic consequences. Studies and real-world experiences have shown that a hasty energy transition away from fossil fuels can be highly disruptive and costly to energy consumers and the general economy. 

New Mexico is a poor state with one of the highest poverty rates in the country. Most states with aggressive climate policies (essentially, “blue states”) are wealthier. They can better afford to have their citizens pay higher energy prices and tolerate lower economic growth than a state like New Mexico. Higher energy prices are a regressive tax that places low-income households in greater financial peril. 

Sound energy policy recognizes that in a clean-energy world, (1) there is no free lunch (look no further than the misadventures in California and Germany), (2) all costs are opportunity costs (monies spent on reducing GHG emissions could be allocated to more urgent problems such as reducing poverty and replacing old infrastructure), (3) trade-offs in a world of scarcity are inevitable (renewable energy versus reliable and low-price electricity), and (4) benefits should exceed the costs. One does not have to dig too far to see that an aggressive climate policy like New Mexico’s, which some politicians and climate activists want to fast-track even more, falls short in meeting these criteria. 

As an example, California has traveled down a primrose path. As reported by S&P Global, “electric rates surged 63 percent in the San Diego area, 44 percent in the San Francisco area and 39 percent in the Los Angeles area between 2020 and 2023, far outpacing the still-steep 24 percent rise in U.S. cities on average, according to data from the U.S. Bureau of Labor Statistics.” California has also experienced serious electric power reliability problems, attributed by some to allocating large sums of money to achieving the state’s stringent clean energy goals. 

Germany’s “Energiewende” program, which features an ambitious plan for renewable energy, has been described by one analyst as a risk “undermining [Germany’s] long-standing position as a European economic powerhouse and global leader in manufacturing.” Another observer commented, “Energiewende has contributed to a steep drop in Germany’s industrial production and employment.” 

The Oversell of Energy Policies 

A study of energy policies since the 1970s reveals that to gain political and public acceptance, advocates of a particular energy policy (irrespective of the nature of their interest) typically overstate the benefits and understate the costs (e.g., the “backup” cost of renewable energy for electricity generation). After all, concealing the costs obviates the need to explain the benefits. Energy policies often communicate the fantasy that we can have everything without paying a price. New Mexico’s and other jurisdictions’ energy policies follow this deceitful tradition. 

Government-driven energy policies inherently place more faith in the implausible benevolence and infallibility of government intervention than in the choices made by consumers and other market participants. In New Mexico, the ETA and EV mandates carry risks. Mandates require policymakers to pick winners and losers, which is a highly difficult task given their limited knowledge. For example, a policy that mandates electric vehicles as a preferred technology can backfire if the price of gasoline falls sharply, or EVs fail to develop economically and technically as hoped for by advocates. 

Sadly, New Mexicans face the risk of the state’s clean energy policy driving it down this ruinous road. It is yet another example of baseless government intervention making things worse rather than better.