RAND Study Concludes Major Progress in Technology Needed for 25% Renewable Energy Use to Be Affordable

24 June 2008

Sample incremental cost of renewables substitution curve under one set of assumptions. Click to enlarge.

Major progress in renewable energy technology is needed if the United States desires to produce 25% of its electricity and motor vehicle fuel from renewable sources by 2025 without significantly increasing consumer costs, according to a new RAND Corporation study. Currently, renewable energy provides 9.5% of total US electricity supply, mostly hydroelectric power, and 1.6% of motor vehicle fuel.

Produced by the RAND Environment, Energy and Economic Development Program, the study provides a snapshot of the nation’s potential energy expenditures if a requirement was imposed that 25% of electricity and motor vehicle fuels used in the United States by 2025 would come from renewable resources (a described as “25 x ’25”, earlier post).

The study finds that biomass resources and wind power have the greatest potential to contribute toward reaching the 25 x ’25 goal.

The study replaces a report withdrawn by RAND in 2006 because of errors RAND identified in the computer model and numerical assumptions on which the findings were based. The new report finds that meeting the 25 x ’25 goals would be more challenging than outlined in the earlier version of the report.

The Energy Future Coalition, a nonprofit environmental organization, asked RAND to assess the economic and other impacts of meeting the 25 x ’25 goal. The RAND study considered technological and economic factors that would affect the costs of renewable energy as well as non-renewable fossil fuels.

Expanding the use of renewable fuels will lower the long-term price of crude oil and reduce carbon dioxide emissions that are contributing to global warming. However, to reap these benefits will require a major investment in improving and increasing the use of renewable energy technology.

—lead author Michael Toman, director of the RAND Environment, Energy and Economic Development program

The study finds that a large, inexpensive and easily converted biomass supply is essential if it is to be used as a renewable resource and still have a limited impact on consumers’ wallets. Developing such a supply would require harvesting energy crops at a scale that greatly exceeds current production.

The report recommends that technical advances in the provision of economically an  environmentally sound feedstock should be a top priority for R&D programs focused on increasing biomass-based energy supplies.

Among the study’s other key findings:

• Increased renewables use can reduce CO₂ emissions and could enhance energy security by reducing petroleum use; however, these gains likely could be realized more cost effectively through a diverse portfolio of energy measures that improve energy efficiency, reduce CO₂ emissions, and increase the availability of energy sources other than conventional petroleum. Moreover, while the pricing of renewable fuels can be used to insulate consumers from price changes, this approach adversely affects energy efficiency and the development of other alternatives and increases pressure on the federal budget from subsidizing higher-cost fuels.

• Renewable energy technology will have to improve at the very significant pace envisioned by some renewable energy supporters in order to enjoy low-cost impacts.

• Significant increases in the use of wind power are possible, but only with substantial technical advances to facilitate greater use of less-productive locations.

• More moderate renewable energy targets—such as 15 or 20%—reduce expenditure impacts more than proportionately, though carbon dioxide reductions also are less significant.

• The federal government’s policy approach to pricing of renewable motor fuels will significantly affect fuel demand and society’s total energy expenditures.

• The 25% requirements can reduce CO₂ emissions significantly, but the additional cost of energy supply per unit of reduced CO₂ emissions can vary considerably, especially in the motor-vehicle transportation–fuel market. Unless there is very substantial cost-reducing technical innovation for expanding renewables, the incremental cost would be higher than the levels of incremental costs often encountered in current policy discussions.

In particular, passing the cost of more-expensive renewable fuels to gas pump prices will result in improved energy efficiency, though it will cost consumers more. Subsidizing more-expensive fuels will save people money at the pump, but only because the expense is shifted to the federal budget.

—Michael Toman

The study does not address the transition and adjustment costs associated with initiating such a significant shift from fossil fuels to renewable energy technologies.

Resources

• Impacts on US Energy Expenditures and Greenhouse Gas Emissions of Increasing Renewable Energy Use