by William Yeatman
August 26, 2007

Major industrial firms like Toyota and Boeing continue to pour investment into Alabama, which now boasts one of the nation’s fastest growing manufacturing sectors. Just as Alabama’s economy revs up, however, Congress threatens to put on the brakes.

Earlier this month,  the House of Representatives passed energy legislation that would require utilities nationwide to generate at least 15 percent of electricity from renewable sources, like wind energy or solar power. The law, known as a renewable portfolio standard (RPS), would make Alabama a much less desirable destination for large, successful companies that provide the region both jobs and greater tax revenues.

Despite enormous government subsidies, it is still more expensive to produce electricity from renewable sources than from conventional sources, and a federal RPS would raise retail rates of electricity.

RPS proponents claim the law is worth the extra costs because it would help shrink America’s “carbon footprint.” But what they rarely acknowledge is that the costs of a federal RPS are distributed unevenly among the states.

A handful of states like Alabama, with low retail electricity rates and limited renewable energy resources, would experience steeper electricity rate hikes. 

A relative increase in energy prices would have a chilling effect on the movement of industry into Alabama. Alabama enjoys some of the cheapest energy in America -- 25 percent less than the national average. That is a huge reason why these companies chose to locate in places like Montgomery or Mobile, and not elsewhere.

A federal RPS would affect states unevenly because the price of electricity varies across America. Consider two states, California and Alabama.

Californians suffer some the highest electricity rates in the country--about 12 cents a kilowatt hour. Alabamians, on the other hand, enjoy very affordable electricity rates, about 6 cents for the same amount of juice.

Assume for a moment that a federal RPS increased the price of electricity by the same amount in both states. Because energy in Alabama is half as expensive as it is in California, a price increase uniform to both states would cost twice as much in Alabama, relative to original rates.

In this fashion, a federal RPS would punish states like Alabama that have affordable electricity.  

A federal RPS would not, however, raise electricity prices uniformly across the nation, because all states are not endowed with equal renewable energy resources.

Renewable energy costs more in a state that has little capacity for it, and that’s bad news for Alabama. According to the National Renewable Energy Laboratory, Alabama has one of the lowest renewable energy potentials in the nation for wind--the most common, and cost effective, source of renewable energy.

These days, states engage in fierce competition with one another to attract large industrial companies. Indeed, most states have established economic development agencies whose sole mission is to solicit business.