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How Federal Regulations Get in the Way of Renewable Energy Development

Victor Nava
December 19, 2013, 11:13am

Leave it to the federal government to provide billions of dollars in subsidies promoting renewable energy projects, while also requiring municipalities implementing those projects to navigate a federal regulatory web so onerous that it discourages any future renewable energy project undertakings.

The City of Logan, Utah knows this feeling quite well. In 2004, the city saw an opportunity to install a micro-hydropower turbine in their culinary water system which would generate enough clean, low-cost electricity to power 185 local homes. Assisted by a $700,000 Recovery Act grant in 2009, the city went ahead with the micro-hydro turbine project which would require no new construction and have no additional environmental impacts. But what started out as an economically feasible idea, which helped solve a problem with the city's water infrastructure, turned into costly and almost unnavigable regulatory maze.

A paper recently released by the Mercatus Center, examines the extent in which federal regulations adversely impacted this relatively small scale renewable energy project in Utah. "Although it is tempting to point to one specific regulation as the root cause of today's impediments to small hydropower development, a federal nexus of regulation is the real problem," the Mercatus Center paper, written by Utah-based authors, states. Even after receiving the stimulus grant (which covered half of the projected $1.4 million dollars needed for the project) the projected benefits from the project will be insufficient to meet its costs.  

After four years, the total cost of the project ended up being $2.8 million (twice what was originally projected) of which $2.1 million were borne by Logan, Utah taxpayers alone. The cost overruns were the result of a myriad of regulations that the city had to comply with in order to complete the project. For one, the Recovery Act grant contained a "Buy American" stipulation requiring that "all of the iron, steel, and manufactured goods used in the project are produced in the United States." This ban prevented the city from purchasing a lower-cost, foreign made turbine. The city also had to comply with a bevy of costly Federal Energy Regulatory Commission (FERC) regulations which included conducting a biological assessment to make sure the project would not harm any species or critical habitat protected under the Endangered Species Act (ESA). The City estimates that it spent $400,000 on FERC compliance alone.  Ironically, many of the same regulations designed to protect the environment created obstacles for Logan City's supposedly environmentally friendly, "green" micro-hydro project.

Logan officials have stated that there is no economic benefit to conducting a project of this size again.  The paper notes that cities in Wyoming and Vermont have had similar experiences. It's an example of how federal regulation can discourage communities from pursuing useful, innovative projects.  It also raises questions about U.S. competitiveness as compared with other countries-a project like this in Canada would cost between $225,000 and $375,000 compared to nearly $3 million in the U.S. In order for Logan City to break even on the project, they would need to run the turbine 24/7 for the next 37 years. Since the project is operating under capacity, it will likely take closer to 50 years.

When it comes to the implementation of "green" energy projects, the federal government is sending mixed messages. They're willing to promote renewable energy projects with subsidies, but they come with a barrage of federal regulations and costly stipulations that make the projects difficult to implement. These federal regulations, supposedly in place to protect the environment, are actually hampering the implementation of environmentally friendly technologies.


Victor Nava is Research Assistant


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