Designing Renewable Electricity Policies to Reduce Emissions

Harrison Fell, Joshua Linn and Clayton Munnings ()
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Clayton Munnings: Resources for the Future

RFF Working Paper Series from Resources for the Future

Abstract: A variety of renewable electricity policies to promote investment in wind, solar, and other types of renewable generators exist across the United States. The federal renewable energy investment tax credit, the federal renewable energy production tax credit, and state renewable portfolio standards are among the most notable. Whether the benefits of promoting new technology and reducing pollution emissions from the power sector justify these policies’ costs has been the subject of considerable debate. We argue in this paper that the debate is misguided because it does not consider two important interactions between renewable electricity generators and the rest of the power system. First, the value of electricity from a renewable generators depends on the generation and investment it displaces. Second, a large increase in renewable generation can reduce electricity prices, increasing consumption and emissions from fossil generators, and offsetting some of the environmental benefits of the policies. Two policy conclusions follow. First, existing renewable electricity policies can be redesigned to promote investment in the highest-value generators, which can greatly reduce the cost of achieving a given emissions reduction. Second, subsidies financed out of general tax revenue reduce emissions less than subsidies financed by charges to electricity consumers.

Keywords: renewable portfolio standard; production tax credit; investment tax credit; feed-in tariff; clean energy standard; cost-effectiveness; intermittency; wind energy; solar energy (search for similar items in EconPapers)
JEL-codes: L94 Q40 Q54 (search for similar items in EconPapers)
Date: 2012-12-12
New Economics Papers: this item is included in nep-ene, nep-env, nep-reg and nep-res
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Citations: View citations in EconPapers (3)

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