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Decarbonization and Electrification in the Long Run

Stephen Holland (), Erin Mansur () and Andrew Yates

No 30082, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Decarbonization and electrification will require a transformed electricity grid. Our long-run model of entry and exit of generation and storage capacity captures crucial aspects of the electricity industry such as time-varying demand for electricity, intermittency of renewables, and intertemporal optimization of storage. We derive several theoretical possibilities that differ in surprising ways from short-run intuition: A carbon tax can increase electricity consumption; cheaper storage can decrease renewable capacity; cheaper renewables can increase carbon emissions; and an increase in electricity demand (e.g., electrification) can decrease emissions. We calibrate the model using 2019 hourly data on demand and renewable availability for thirteen regions covering the contiguous U.S. A carbon price of $150 or more essentially eliminates carbon emissions. Given a modest decarbonization goal, a renewable subsidy performs better than a nuclear subsidy, but this ranking is reversed for an ambitious decarbonization goal. Transmission expansion yields large emissions reductions if renewable costs fall sufficiently, but policies promoting storage are unlikely to yield significant benefits. Electrifying 100% of car miles traveled (thereby eliminating gasoline vehicle carbon emissions) increases electricity-sector carbon emissions by 23-27% if vehicles are charged at night, but could decrease electricity-sector carbon emissions if vehicles are charged during the day.

JEL-codes: H23 Q4 Q53 Q54 (search for similar items in EconPapers)
Date: 2022-05
New Economics Papers: this item is included in nep-ene, nep-env and nep-tre
Note: EEE
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