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Study Quantifies Economic Effect of Electricity Price Increases in Kentucky and the Rest of the U.S.

Creative Commons

A new whitepaper released by Kentucky regulators in draft form last week quantifies the economic effects of rising electricity prices on jobs in the state and around the country.

The paper uses a hypothetical 10 percent across-the-board increase in electricity prices around the country, and measures the effects of that increase on various states and industries. The most vulnerable states seem to be those similar to Kentucky: ones that have both a carbon-intensive energy portfolio and electricity-intensive industries.

Overall, the paper estimates a 10 percent rise in the real price of electricity would result in the loss of more than a million jobs and $142 billion in the American economy. But despite these losses, the research found that most of the nation’s industries would be relatively unaffected by the increased cost of electricity.

Energy and Environment Cabinet Secretary Len Peters—who also co-authored the paper—said this information will help regulators decide what policies need to be pursued to protect the economy as electricity prices increase—whether that’s due to environmental regulations or market factors.

“We want to understand the dynamics, and we want to understand at least semi-quantitatively what the implications are,” he said. “We are using these analyses to guide us in directions that we think we should be going.”

But Peters said looking at these factors and evaluating their effects on the economy is an inexact science. “As I like to say, it’s a compass and not a GPS system,” he said. “‘Which quadrant are we in’ versus ‘us going to 355 33rd St.’ We want to point out where the impacts on our economy would be and what business sectors would be hit most.”

The paper also notes that a 10 percent increase in electricity prices would result in a job gain in one sector: electrical utilities. But the expected gains aren’t substantial enough to offset declines in other industries.

The paper is currently being peer-reviewed. To read the draft, go here.

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