Most advocates of electrification – and there are many in New Mexico – fail to consider the downsides of electrification. With deepening concerns over climate change, politicians, policymakers, electric utilities, and environmentalists are pushing the idea of electrification: The replacement of fossil fuels with electricity for direct end uses like transportation and water and space heating.
The Inflation Reduction Act passed last year includes tax credits to encourage the purchase of heat pumps and other electric appliances and devices, in addition to electric vehicles. The major intent of this federal legislation is to mitigate climate change, but it does so by hiding the true cost to society with its massive subsidies.
Proponents want electrification to occur sooner than later, to be accelerated by subsidies like tax credits on heat pumps and electric vehicles and other governmental inducements. Some even advocate for mandated electrification and natural gas bans to avoid alleged climate catastrophe. Others point to the less lofty goal of revitalizing the electric industry, although electrification could cripple the natural gas and oil industries with significant job losses. Another group argues that electrification is already economical for end uses, like water and space heating. You have to wonder why, if believable, we then need subsidies to induce energy consumers to switch to electric vehicles and heat pumps.
Many of the arguments supporting aggressive climate actions depict those actions as a free lunch. How could any rational person oppose them? Aren’t we facing a climate apocalypse that demands a full-court effort, regardless of the cost, to prevent it from happening?
Anyone opposing electrification must be a climate denier or just plain ill-informed. A fatal problem is that proponents view electrification at the 40,000-foot level besides their false narrative that electrification can have more than a nominal effect on climate change.
Instead of artificially bolstering electrification with subsidies and mandates, which proponents of electrification would have us do, we should wait to see where electric technology leads us. Technological advancements will determine the ultimate success of electrification – not subsidies and other governmental actions that are largely politically driven and plain wrongheaded.
For electric vehicles, the challenges are still daunting: infrastructure investments – chargers, customer and utility upgrades in their distribution systems, rapid direct-current charging, education and outreach, range anxiety – limited battery storage capability, the availability of charging stations across the country and demands on the electric grid.
For heating, economics is the toughest hurdle, as most electric heat pumps are only cost-effective in areas that have low electricity prices and moderate winters, at least in comparison to natural gas. Further technological improvements will make heat pumps more economically viable and markets, not government handouts, can best achieve that.
Whether energy consumers rely on fossil fuels or electricity for their transportation or space-heating needs comes down to a rational choice of what source of energy would best satisfy those needs. With few exceptions, consumers express their choices and make the best decisions for themselves.
We can say with confidence that accelerating electrification with government subsidies and mandates is a win-win for electric utilities and environmentalists, but a loser for society as a whole.
The problem of new electric technologies subsidized by taxpayers with only a distinct minority benefitting is hard to ignore, both politically and economically. It would likely have a regressive effect by disproportionately benefiting higher-income households while being funded by all income groups.
Before moving ahead with any action, policymakers should ask themselves what benefits electrification offers relative to the costs. It is a sure bet to say that New Mexico would suffer net costs if the intent of accelerated electrification is solely to mitigate greenhouse gas emissions. The benefits mostly go to the rest of the world while the costs stay in the state.
It is somewhat puzzling why a state like New Mexico on its own, without cooperation from other states or the federal government or other countries, would overhaul its energy sector (which massive electrification would do) at a high transition cost for something that would largely benefit the rest of the world, namely, the mitigation of climate change.
To repeat, the long-term success of electrification will depend critically on new technological developments that will improve its economics and acceptability to a larger segment of society. Politicians and bureaucrats in New Mexico should place their trust in markets to ensure that electrification will be for the good of society – not just for special interests.
Kenneth Costello, who is a regulatory economist and independent consultant, resides in Santa Fe.
