Do Renewable Portfolio Standards Deliver?

Key Takeaways

• Though the United States has had trouble coming to a consensus on broad-reaching climate policy, 29 states and the District of Columbia have been successful in passing Renewable Portfolio Standards (RPS), which require that a percentage of the electricity generation come from renewable sources. These programs currently cover 64 percent of the electricity sold in the United States.
• Until now, studies have suggested that RPS programs only marginally increase electricity costs, because they have only examined differences in the costs of generation. These studies fail to fully incorporate three key costs that the addition of renewable resources impose on the electricity system: 1) The intermittent nature of renewables means that back-up capacity must be added; 2) Because renewable sources take up a lot of physical space, are geographically dispersed and are frequently located away from population centers, they require the substantial addition of transmission capacity; and 3) In mandating an increase in renewable power, baseload generation is prematurely displaced, which imposes costs on ratepayers and owners of capital.
• This study compares states with and without RPS policies. It does so using the most comprehensive state-level dataset ever compiled on these outcomes and RPS program characteristics covering the period from 1990 to 2015. The study estimates the impacts of the RPS policies on electricity prices, electricity consumption, renewable penetration, carbon emissions, and economic activity.
• The study finds that RPS programs significantly increase average retail electricity prices, with prices increasing by 11 percent (1.3 cents per kWh) seven years after the policy’s passage into law and 17 percent (2 cents per kWh) twelve years afterward. All in all, seven years after passage, consumers in the 29 states 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 about 1.8 percentage points seven years after passage into law the start of the program and 4.2 percentage points twelve years after passage. The study finds that that increased renewable generation shares result in reduced carbon intensity of the electricity grid in states with the policy.
• 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 and as much as $460 per metric ton of CO2. This is several times higher than conventional estimates of the benefits of reducing a metric ton, or the social cost of carbon (SCC). The Obama Administration’s central estimate of the SCC is roughly $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.