Economists say Md. Needs Wind Energy, Fracking, More


ANNAPOLIS (April 12, 2012)—Maryland energy policy remains in limbo, without major progress on offshore wind or hydraulic fracturing during the recently completed General Assembly session.

A bill that would have brought wind turbines to the state's Atlantic coast collapsed for a second year in a row. And hydraulic fracturing, a natural-gas extraction process commonly called fracking, is on hold while an advisory commission examines its potential impacts.

Both energy solutions inspire passion in the state's legislators. Democrats overwhelmingly support offshore wind, with its promise of long-term renewable energy, while Republicans mostly favor hydraulic fracturing's lower startup investment and quick profits.

But economists versed in energy policy argue that political bickering should not overshadow the issue at hand: Maryland needs to find new solutions for its energy future. They say the state should consider a range of resources - not just offshore wind and natural gas, but land-based wind, solar, geothermal and nuclear, too.

The state currently imports about 30 percent of the electricity it consumes, according to a Public Service Commission report. That makes Maryland the fourth largest energy importer in the nation by percentage - trailing only D.C., Virginia and Delaware.

Officials are working toward a third nuclear reactor at Calvert Cliffs in Calvert County, which would be the first new reactor approved in the country in a generation.

Charles Ebinger, director of the Brookings Institution's Energy Security Initiative, said polarized debate among legislators has created a false sense of having to choose between two distinct options.

"I think, on balance, it's good to have a diversified energy base," he said. He believes policymakers should be looking into both fracking and offshore wind, in addition to other energy sources.

The economic costs and benefits of each option remain contested.

Proponents of fracking say it's the better bet for the moment, with contractors eager to start tapping the vast natural gas reserves of Western Maryland's portion of the Marcellus Shale, which spans 95,000 square miles from Tennessee to New York.

Offshore wind supporters counter that wind farms, while expensive to install, will ultimately provide the state with an endless supply of low-cost, sustainable electricity.

Opponents of the wind act are concerned about hikes to Maryland ratepayers' monthly energy bills. This session's wind legislation would have capped increases at $1.50 a month per household and 1.5 percent of the total electricity bill for commercial and industrial businesses.

Meanwhile, an effective moratorium has been placed on fracking while an advisory task force appointed by the governor investigates the legal, economic and environmental impacts of the controversial drilling practice. A bill to protect landowners against fracking-related water contamination passed this session, although legislation that would have collected fines from potential drillers to pay for the task force's research never made it out of the Senate.

For the moment, Ebinger thinks fracking is the more economically viable option.

"I think the sheer size of the shale gas resource in the country - but particularly in the Marcellus area near here - in my opinion would favor going the shale gas route while making sure, of course, that when the wells are drilled the casings that encompass the equipment are up to ... standards," he said.

His concern with offshore wind is the economic burden it puts on ratepayers, particularly those who are already struggling financially. He said despite the cap, costs would end up falling on consumers in some way.

"The problem, when they say they'd put a cap on ratepayers (is) if the costs are there, they have to be paid by someone," Ebinger said. "If they're not paid by ratepayers, then they have to be paid by the state budget. Anytime you produce a commodity, those costs are being incurred somewhere along in the system."

Anirban Basu, an economist and chairman and CEO of Sage Policy Group, a Baltimore-based economic and policy consulting firm, agreed that consumers would end up shouldering the cost of wind farms one way or another.

"The fundamental issue is that requiring utilities to purchase offshore wind is very similar to requiring utilities to purchase very expensive energy and to then pass along those additional charges to the consumer," he said.

Like Ebinger, Basu thinks the state should be broadening its range of energy alternatives. He is a fan of land-based wind turbines, which are cheaper to build and maintain than offshore turbines, although they produce less energy.

When deciding whether government should step in and support a particular industry, he said it's important to ask one question: "Is there a sufficiently compelling social purpose such that the consumer should be required to pay more for the energy they consume than would be produced by the market mechanism?"

Offshore wind supporters say the environmental benefit is reason enough. And they counter cost-related concerns with predictions that offshore wind's price tag will decline over time as the industry becomes established, and will eventually undercut the cost of other resources like coal and gas.

Peter Cramton, a professor of economics at the University of Maryland and a senior advisor at the Global Energy Policy Center, said costs associated with offshore wind would necessarily be high for a while, and that the industry would require government support to be competitive. But he predicted wind power would become more affordable within a matter of "a few years," citing falling costs for wind turbines and other building materials.

"It's true that in the early years (offshore wind) will be costly, but of course those costs will go down over time, and also it's likely that fossil fuels will become more expensive," he said.

The rising costs of coal and gas have been a main peg in O'Malley's argument for the long-term viability of wind energy. Unlike nonrenewable energy sources, he says, the cost of wind will not increase because there is no shortage of the resource.

But a March 2011 report from Sage Policy Group, citing the Annual Energy Outlook published by the U.S. Department of Energy, argued claims that electricity costs will necessarily rise are misguided. The outlook shows a flat trend through the end of the projection, in 2035.

Frank Felder, an economics professor at Rutgers and director of the school's Center for Energy, Economic and Environmental Policy, said part of the reason wind energy is so expensive in comparison to other energy sources is because environmental costs are not factored into energy pricing. Natural gas prices, he said, don't factor in the environmental cost of the carbon dioxide emitted when the fuel is burned.

"Without a meaningful pricing policy, offshore wind is just very expensive. It hasn't been done in the U.S., so whether or not it's worth it ... that depends on how much it ends up costing and how much you care about greenhouse gases," he said.

Still, he called fracking a "game changer," and said it was a step away from coal-burning power plants.

"If you're using natural gas to displace coal, which is definitely possible and probable, you're getting an environmental benefit," he said. "On the other side, there's some risk to the water that has to be dealt with."

Ebinger said the broader view of economists should be adopted by politicians.

"The problem with this whole debate is it gets so politicized," he said. "I think as long as it remains a balanced discussion and we realize that we need all these sources to the greatest degree possible, let markets decide what to develop."

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