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The costs and value of renewable portfolio standards in meeting decarbonization goals

David Young and John Bistline

Energy Economics, 2018, vol. 73, issue C, 337-351

Abstract: Renewable portfolio standards are common policy instruments deployed in many U.S. states and other countries. Arguably the primary driver for these standards is their use as a tool to reduce carbon dioxide (CO2) emissions from the electric sector. The cost-effectiveness of this mitigation approach relative to other policies is hotly disputed. In this paper, we use the US-REGEN model to evaluate the costs and CO2 emissions reductions of existing and potential renewable portfolio standards in the United States, and to compare these mandate-based policies to the least-cost resource portfolio that achieves equivalent CO2 reductions. We find that, in most cases, renewable portfolio standards are approximately twice as costly as the equivalent least-cost portfolio for achieving CO2 reductions, although the ratio can be much higher for standards with lower abatement. Furthermore, the effectiveness of renewable portfolio standards at reducing CO2 emissions depends strongly on future natural gas prices. Technology-neutral instruments to achieve CO2 reductions usually replace existing coal generation with the cheapest alternative, given natural gas and CO2 prices. A mandate for renewables is higher cost both because renewable generation may not be the cheapest alternative to coal generation, and because adding renewable capacity often displaces non-coal generation on the margin when there is no CO2 price.

Keywords: Renewable Portfolio Standards; Decarbonization; Market-Based Environmental Policy; Technology; Energy-Economic Modeling; US-REGEN (search for similar items in EconPapers)
JEL-codes: L94 Q42 Q48 Q28 C61 (search for similar items in EconPapers)
Date: 2018
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Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

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