Customers outside dense urban areas will get stuck with huge electric bills.
The Green New Deal is the shiny new object in Washington. Rolled out last week by Representative Alexandra Ocasio-Cortez (D., N.Y.) and Senator Ed Markey (D., Mass.), the proposal is a grab-bag of policies that covers everything from creating “high-quality union jobs” to universal health care. It has been endorsed by four Democratic contenders for the White House and nearly 70 members of the House of Representatives.
The fundamental charge of the Green New Deal is the “green” part: The U.S. is supposed to get to “net-zero greenhouse gas emissions through a fair and just transition for all communities and workers.” Achieving such a goal (and doing it in just ten years) would require overhauling nearly every piece of energy infrastructure in the country. That’s where the Green New Deal parts company with the real New Deal — and, in fact, contradicts the achievements of the legislators who helped ensure rural electrification, and by doing so, helped set the table for America’s emergence as an economic superpower after World War II.
Two pieces of New Deal legislation changed the shape and structure of America’s energy sector: The Public Utility Holding Company Act of 1935 busted the big electric utilities that had a stranglehold on America’s electric grid, and the Rural Electrification Act of 1936 provided low-cost federally backed loans to electric cooperatives and other entities, which allowed them to build their own electric grids and be independent of the big utilities. Those laws helped slash electricity costs for rural customers and led to a broad dissemination of economic and political power across the country that was critical to the development of western and southern states. And that leads to my thesis: If the Green New Deal becomes a reality, it will dramatically increase electricity costs and concentrate economic and political power in big business and in Washington. In short, the biggest costs of the all-renewable-energy push will be paid not by urban liberals such as Ocasio-Cortez, who are pushing the Green New Deal, but by rural Americans who probably voted for Donald Trump.
Understanding the origins of the real New Deal requires understanding the energy scarcity that predominated in rural America for five decades after Thomas Edison launched the Electric Age on Pearl Street in lower Manhattan in 1882. Edison’s Pearl Street generating plant ignited a frenzy of electrification. By 1890, the U.S. had about 1,000 central power stations. Between 1900 and 1930, U.S. electricity production grew nearly 20-fold. But that wave of electrification largely bypassed rural America. By the early 1930s, just 16 electric holding companies were producing about 77 percent of all the electricity produced by privately owned power plants in America. In addition, over 80 percent of the country’s natural-gas pipelines were controlled by just 15 holding companies.
The holding companies were happy to provide electric service in cities and towns, where population density was high. Having lots of customers in small geographic areas meant that the electric companies could serve dozens, or even hundreds, of customers on a single distribution line. This meant lower costs per customer and, therefore, higher profits than in rural areas, where the utility might have to put up several miles of line to serve a handful of customers. The result of the holding companies’ refusal to serve rural customers was obvious: By the early 1930s, nine out of ten U.S. farms lacked electricity.
In addition, the holding companies often charged exorbitant rates to customers in the small towns that they did serve. For example, in 1925 Texas Power & Light, a subsidiary of one of the biggest holding companies, Electric Bond and Share, was providing electricity to the central Texas towns of Kerrville and San Marcos at rates as high as 15 cents per kilowatt-hour. That would be about $2.63 in 2016 dollars. That’s astonishingly expensive, given that the average price of residential electricity in the U.S. today is about 12.5 cents per kilowatt-hour. Put another way, when measured in constant-dollar terms, in the mid-1930s, residents of some rural Texas towns were paying about 21 times as much for their electricity as residents of those towns are paying today.
For New Deal politicians such as Representative Sam Rayburn (D., Texas), Senator George Norris (R., Neb.), and Senator Burton Wheeler (D., Mont.), the need for cheap electricity in rural America could no longer be ignored. Rayburn grew up on his family’s 40-acre cotton farm near the north Texas town of Bonham. First elected to the House of Representatives in 1912 at the age of 30, Rayburn never forgot where he came from or how hard life was for farmers. Without electricity, Rayburn said, rural farmers and ranchers were merely “unwilling servants of the washtub and water pump.” As he famously said: “I want my people out of the mud and I want my people out of the dark.”
Rayburn, who would go on to be the longest-serving speaker of the House in U.S. history, was the co-sponsor of both the Public Utility Holding Company Act and the Rural Electrification Act. Those New Deal laws yielded quick results. By 1950, nine out of ten farms in America were connected to the electric grid, a reversal of the situation that existed just 20 years earlier. Between 1940 and 1970, the amount of electricity produced by rural cooperatives jumped more than 200-fold. Over that same time period, the cost of residential electricity in the U.S. fell dramatically, going from 3.8 cents per kilowatt-hour in 1940 to 2.1 cents in 1970.
Today the U.S. has some 900 electric cooperatives spread among 47 states. (I’m a member of the Pedernales Electric Co-op.) Those cooperatives are pillars of rural America. They provide good-paying jobs. Being elected to the board of a cooperative is considered an honor. Cooperatives are focused not on returning profits to shareholders but on ensuring low-cost, reliable electricity to their member-owners. The capital they generate doesn’t flee to big cities; instead it is returned to the local communities in the form of new capital projects and lower electric rates.
The Green New Deal’s all-renewable, anti-nuclear agenda will require those cooperatives to abandon the business model that they’ve relied on for decades. By 2016, America’s cooperatives were relying on coal- or gas-fired generation plants for about 67 percent of the electricity they were selling. Non-hydro renewables were providing about 8 percent of their electricity. Forcing those coops to junk their coal- and gas-fired power plants and replace them with all-renewable systems will cost untold billions of dollars. That will mean higher prices for consumers.
It is an established fact that big renewable-energy mandates result in big increases in prices for consumers. That can be seen in Germany, Ontario, and California.
Let’s look first at Germany, which has already launched its own version of the Green New Deal, called the Energiewende. Germany has pledged to slash its greenhouse-gas emissions by 40 percent (compared to 1990 levels) by 2020, and by 95 percent by 2050. But as the push for renewables has increased, so, too, has the cost of electricity. Between 2007 and 2018, residential electricity prices in Germany jumped by 50 percent. The result: German residential customers now have some of the highest-priced electricity in Europe, about $0.37 per kilowatt-hour.
In 2009, the Ontario provincial government launched the Green Energy Act, which guaranteed long-term contracts to renewable-energy generators at prices well above market rates. To pay for the measure, Ontario, which is home to nearly a third of Canada’s 36 million residents, added surcharges to ratepayers’ electric bills. The province also forced the closure of coal plants, claiming that doing so would improve public health. The result: Between 2008 and 2016, residential electricity rates in the province jumped by 71 percent, which was more than double the average increase in the rest of Canada over that time period.
California has mandated that utilities must get at least 60 percent of their electricity from renewables by 2030. Last year Mark Nelson and Michael Shellenberger, of the Berkeley-based think tank Environmental Progress, released a report that showed that between 2011 and 2017, electricity prices in California rose at more than five times the rate in the rest of the U.S.
In addition to the cost increases, the Green New Deal will result in a shift of political and economic power away from rural areas and the coops that serve them, and back to big utility companies and the federal government. Adding large quantities of new renewable-energy capacity in a short amount of time will require close cooperation between federal regulators and the big utility companies because those big companies are the only entities that can add lots of new capacity in a short amount of time. The investor-owned utility companies have bigger balance sheets, more lobbyists, and far more customers than the rural co-ops.
Recall that the language of the (non-binding) resolution for the Green New Deal emphasizes the need for a “mobilization on a scale not seen since World War II.” That wartime mobilization hinged on the ability of the federal government to coerce the biggest industrial companies of that era — including Ford Motor Co. and General Motors — to shift their production lines away from passenger cars and other consumer goods and toward tanks, guns, and airplanes. The Green New Deal would require a similar blurring of the lines between government and industry. And charming as they may be, tiny electric cooperatives such as Garland Light & Power, in Powell, Wyo., which has about 1,600 member-owners, won’t be of much use in transforming the American electric grid. Instead, it’s easy to imagine that rural cooperatives will be taken over by the big utilities or the federal government in the headlong pursuit of a lower-carbon economy.
Furthermore, if the all-renewable push becomes a reality, rural America will be forced to accept thousands of miles of new high-voltage transmission lines, as well as massive amounts of new wind and solar generation capacity.
In short, what’s old is new again. During the 1930s, the U.S. was rapidly urbanizing and rural areas were being left behind. That same rural–urban divide continues to be a defining element of American politics today. Rayburn and his allies pushed for rural electrification because they knew that without it, their constituents would always be second-class citizens. Saddled with high-cost electricity or no electricity at all, residents of rural towns and villages across the country would never be on an equal footing with their urban counterparts.
If the Green New Deal becomes a reality, the urban–rural divide will only grow more stark. And rural Americans will be among those paying the highest prices.
Editor’s Note: This piece has been emended since its original posting.