The spatial distribution of welfare costs of Renewable Portfolio Standards in the United States electricity sector

Abstract

In the US, renewable energy policy has largely followed a regional approach; 29 states are currently implementing Renewable Portfolio Standards (RPSs) at varying levels of stringency, while the other states have no renewable energy policy. Requiring individual states to achieve given targets is likely to be less efficient and lead to different levels of greenhouse gas (GHG) abatement than a national RPS that achieves the same national share of renewable electricity generation since the latter allows more flexibility in the regional shares based on their relative costs of renewable electricity generation. RPSs are also likely to be less efficient than a national GHG cap and trade (GHG Cap) policy which allow flexibility in achieving GHG abatement through a variety of approaches. We examine the welfare costs and GHG abatement achieved by the existing state RPSs relative to a hypothetical national RPS and a national GHG Cap policy. We undertake this analysis using a dynamic, multi-region, partial-equilibrium, price-endogenous model of the US electricity, agricultural, and transportation sectors, called the Biofuel and Environmental Policy Analysis Model (BEPAM-E). Our results show that a hypothetical national RPS and can induce an equivalent share of renewable-based electricity generation as the state RPSs but at a $61 billion lower welfare cost over the 2007–2030 period. The national RPS would also achieve greater GHG reductions than the state-level RPSs, as it induces a larger decrease in coal generation. We find that the national RPS and national GHG Cap are 55 and 74% more cost-effective in reducing GHG emissions than the state RPSs.