April 30, 2019
The Economics And Politics of Renewable Portfolio Standards
In the absence of a comprehensive, national climate policy, many state governments have implemented their own policies aimed at reducing emissions within their borders. Renewable Portfolio Standards (RPS) are perhaps the best-known of these policies, requiring that a certain minimum percentage of a state’s electricity come from solar, wind, and other renewable sources. Advocates argue that such standards can reduce carbon emissions and offer consumers more choice. But there have been long-standing questions about the precise impact of these policies on electricity rates and their overall efficiency as a climate policy.
A new study by EPIC Director Michael Greenstone and his co-authors found that RPS programs increased electricity prices by as much as 17 percent over twelve years. While they also increased renewable generation, therefore reducing emissions, these reduced emissions came at a high cost. The study found that the cost of abating carbon emissions through an RPS policy is as much as $460 per metric ton—several times higher than conventional estimates of the social cost of carbon.
These findings served as the catalyst for a discussion on the effectiveness of RPS programs during EPIC’s spring quarter Inquiry & Impact series event. Greenstone, the Milton Friedman Distinguished Service Professor in Economics, addressed the study and larger policy questions. He was joined on a panel with EPIC’s 2018-19 Policy Fellows, Melanie Kenderdine and McKie Campbell, moderated by Axios Energy Reporter and EPIC Journalism Fellow Amy Harder.
Neither Kenderdine nor Campbell found the high cost of RPS programs surprising.
“All this says to me is a couple things: That we probably need a clean energy standard as opposed to a renewable portfolio standard because we should not be picking and choosing technologies,” said Kenderdine, who held senior positions at the U.S. Department of Energy during the Clinton and Obama administrations. “And an RPS is pretty selective in which technologies it chooses, and that doesn’t accommodate huge regional differences in how different regions of the country are generating electricity.”
Campbell, who has 30 years of governmental and private sector energy and natural resource experience, including as staff director of the U.S. Senate Energy and Natural Resources Committee under Alaska Sen. Lisa Murkowski, said that he wasn’t surprised because when states implement these programs a foundational question isn’t asked: What are you trying to do?
“I know that sounds really simplistic, but in dealings with it in the Senate and on The Hill, you’d ask, ‘What are you trying to do? Is your driver climate? Are you trying to stop emissions?’” Campbell said. “If you’re trying to stop emissions, then clearly you need to have a wider net, include hydro, include nuclear. You’ll get fierce resistance to that generally from the [RPS] proponents. They’ll say, ‘No, this is to drive technology for solar, for selected technologies.’ If that’s the purpose, that’s OK, but I think it’s important to be up front about what your purpose is.”
Campbell, Kenderdine and Greenstone all said they would prefer an economy-wide price on carbon to a national clean or renewable energy standard.
“The climate problem is real and urgent, and we need to be ruthlessly searching out the cheapest reductions,” Greenstone said. “That’s my agenda. Had it turned out that Renewable Portfolio Standards were better than everything else, great. I have no stake in what the answer is...The enemy is not that there’s not enough of a particular technology in the generation system. That’s not causing climate change. What’s causing climate change is CO2.”
Kenderdine said a carbon tax is preferable because it puts a price on all carbon in the economy, whereas RPS programs addresses only the power sector, which accounts for just 28 percent of emissions nationwide.
“You’re only addressing a relatively small percentage of the picture,” she said. “A carbon tax gets you a much broader approach to addressing what I think is an urgent problem.”
There have been mixed results with instituting carbon pricing in the United States. California launched its cap-and-trade system in 2013, and nine eastern states plus the District of Columbia comprise the Regional Greenhouse Gas Initiative (RGGI), another cap-and-trade market for carbon emissions. Meanwhile, deep-blue Washington twice rejected a modest carbon fee, Harder said, but recently enacted a 100 percent clean energy standard. Other states such as California, Colorado, Hawaii, Illinois, Nevada, and New Mexico have passed or are aggressively pursuing 100 percent renewable or clean energy standards.
So, is there a viable political path to national carbon pricing?
Campbell said imposing extra costs on energy use is never popular because it affects nearly every aspect of our everyday lives. But he thought a carbon fee in which revenue is returned to the American people would be the most likely way of getting enough political buy-in.
“I think the politics of all of this is tough,” he said. “It’s the reason that no country is meeting its goals worldwide. None of them. We’re not going to make the 2-degree goal [of the Paris Climate Accord]. We’re asking people to make immediate sacrifices today to avoid a harm tomorrow, and no matter how much they believe in the harm tomorrow, that’s a tough request.”
Regardless of if and how a national climate policy is enacted in the United States, Greenstone said it was important to examine the effectiveness of RPS programs, the first of which was enacted in 1991 in Iowa.
“Policy should not necessarily be driven by what comes out of cost-benefit analyses, but it seems like an important input,” Greenstone said. “And we didn’t have that information on RPS before [this study].”