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EPIC: state-level renewable electricity mandates increase electricity prices up to 17% over 12 years; cost more expensive than benefit

As states take the lead in confronting climate change, a flagship policy is often Renewable Portfolio Standards (RPS). RPS programs, which require that a certain percentage of the state’s electricity come from renewable sources, currently cover 64 percent of the electricity sold in the United States. A new study analyzing data from the 29 states and District of Columbia with mandatory RPS policies finds that the policies come at a high cost to consumers and are inefficient in reducing carbon emissions.

The increasing urgency of climate challenge means that the case for ruthlessly seeking out the least expensive reductions in carbon emissions is rapidly strengthening. This study joins a growing body of evidence that demonstrates that when climate policies favor particular technologies or target something other than the real enemy—carbon emissions—the result is less effective and more expensive than is necessary. In contrast, the global experiences from carbon markets and taxes make clear that much less expensive ways to reduce CO2 are available right now.

—co-author Michael Greenstone, the Milton Friedman Distinguished Service Professor in Economics and director of the Energy Policy Institute at the University of Chicago (EPIC)

Greenstone and his co-author, Ishan Nath from the University of Chicago, compare states with and without RPS policies using the most comprehensive dataset compiled to date.

They find that RPS programs significantly increase retail electricity prices, with prices rising by 11% seven years after the policy became law and 17% twelve years afterwards. The cumulative effect seven years after the passage of the legislation initiating an RPS, consumers in the 29 states studied had paid $125.2 billion more for electricity than they would have in the absence of the policy.

On the other side of the ledger, RPS programs increase renewable generation. In states with RPS policies, renewables’ mandated share of generation increased by about 1.8 percentage points seven years after passage, and 4.2 percentage points twelve years afterwards. The paper estimates that this increased renewable generation reduced the carbon intensity (i.e., carbon emissions per unit of electricity) of these state’s electricity generation and, in turn, their carbon dioxide (CO2) emissions.

However, these reduced emissions came at a high cost. The study found that the cost of abating carbon emissions through an RPS policy is more than $130 per metric ton of CO2 abated, and as much as $460 per metric ton. This is several times higher than conventional estimates of the benefits of reducing a metric ton of CO2 emissions, a measure known as the social cost of carbon (SCC). The Obama Administration’s central estimate of the SCC would be approximately $50 per ton in today’s dollars.

A second point of comparison comes from the cost of abating a metric ton of CO2 in current cap-and-trade markets in the US: it is about $5 in the northeast’s Regional Greenhouse Gas Initiative (RGGI) and $15 in California’s cap-and-trade system.

The study explains that RPS policies raise electricity prices more than previously thought, because several hidden costs have typically been ignored:

  1. The intermittent nature of renewables means that back-up capacity must be added;

  2. Since renewable sources take up a lot of physical space, are geographically dispersed and are frequently located away from population centers, they require the addition of substantial transmission infrastructure; and

  3. By mandating an increase in renewable power, baseload generation is prematurely displaced, and some of the cost is passed to consumers.

While the retail price for wind and solar has dropped in recent years, our research suggests that the majority of RPS programs’ costs are through these indirect channels associated with their integration into a highly-complex electricity grid. We think the next frontier in making renewables an important part of the grid globally is to focus on policies and technology mechanisms that facilitate the integration of these intermittent sources onto the grid, such as advanced storage technologies and time-of-use pricing.

—Michael Greenstone

Greenstone and his co-authors note that at least some RPS policies also have goals beyond reducing carbon emissions, such as spurring improvements in renewable technologies and improving job growth in the renewable sector. They were not able to analyze the extent to which portfolio standards have succeeded in meeting these goals. However, they noted that “If they do drive down generation costs industry-wide, then this would alter any cost-benefit analysis.” The analysis also does not assess the impact of RPS policies on criteria pollutants. However, these pollutants are subject to national limits, which are enforced at the county level by the Environmental Protection Agency.

Overall, our study finds that as of today these policies have proven to be expensive ways to reduce CO2 emissions. The global experiences from carbon markets and taxes, however, make clear that much less expensive ways to reduce CO2 are available right now.

—Michael Greenstone

Comments

Bernard

They seem to completely ignore externalities: pollution, health care to fix the effects of the pollution, exporting money to pay for non-renewables (coal, gas, oil).
I don't doubt that many of these programs could be better, but that doesn't justify looking at only one side of the ledger.

Engineer-Poet
By mandating an increase in renewable power, baseload generation is prematurely displaced, and some of the cost is passed to consumers.

By "baseload generation" they mean mostly nuclear, but the N-word must not be spoken.

Nuclear baseload is far cleaner than "renewables" plus the natural gas-fired turbines required to keep pace with their rapid ups and downs.  Until they get to some (rather high) capacity factor, the "renewables" plus turbines are not even as clean as combined-cycle plants.  "Renewables" are part of the fossil fuel industry's effort to lock itself in forever.

SJC

11% seven years...
That is lower than inflation.

HarveyD

Future much lower cost REs will progressively push fossil fuels (coal-NG) out of the energy generation and (diesel-gasoline) ground transport vehicles business and will greatly contribute to lower pollution and GHGs.

SMRs may also contribute if the initial and operation cost is low enough and spent fuel can be stored safely for long term.

Oilcos could participate to both (REs and SMRs) systems and doubly so by phasing out their fossil fuel works?

Engineer-Poet

... and there goes the AlzHarvey broken record again.

dursun

from University of Chicago, take with a pallet of salt

SJC

People have the right to comment without ridicule, small minds try to dominate with insults.

Engineer-Poet

People have a right to a forum without boring, painfully repetitive, paid and often off-topic propaganda.

HarveyD

SAEP is one of the few posters continuously against lower cost cleaner energy from higher efficiency REs, such as 40 % solar panels and 15 megawatt wind turbines.. His preference for much higher cost NPPs is no longer justified.

Good manners were not always around where he comes from?

Engineer-Poet
SAEP is one of the few posters continuously against lower cost cleaner energy from higher efficiency REs, such as 40 % solar panels and 15 megawatt wind turbines..

You've added a new propaganda phrase to your repertoire:  "15 megawatt wind turbines".  The size of land-based turbines is limited by the size of blades and tower sections.  Tell us, how do you TRANSPORT such a massive machine on normal roads and railways?

You won't answer this.  You have no answers, only endlessly-repeated propaganda talking points.  You are a broken record.

His preference for much higher cost NPPs is no longer justified.

"Renewable" Germany has utterly failed even to meet its 2020 carbon-emissions targets, while nuclear France and Sweden put far lighter burdens on the environment.  AlzHarvey's preferences for much worse-performance "renewables" was never justified, and should now be cause for civil fines or even jail like "holocaust denial".

Good manners were not always around where he comes from?

Where I come from, pathological lying gets you shunned.  Until you get banned I'm going to have to keep calling you out on it.

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