Assessment of RPS Cost-Effectiveness

The most prevalent and perhaps most popular climate policies in the U.S. are Renewable Portfolio Standards (RPS) that mandate that renewables (e.g., wind and solar) produce a specified share of electricity, yet little is known about their efficiency. The first RPS was passed in Iowa in 1991 and as of 2015, RPS policies have been enacted in 29 states and the District of Columbia. Despite the popularity of these policies, there is little systematic evidence on RPS’ impacts on electricity prices, carbon emissions, or the cost per ton of avoided CO2 at even the modest levels of stringency that have prevailed to date.

This paper estimates the aggregate costs and benefits of RPS by comparing states that did and did not adopt RPS policies using the most comprehensive panel data set ever compiled on program characteristics and key outcomes from 1990-2015. Using a difference-in-differences style research design, we find that electricity prices are 11% higher seven years after RPS passage and 17% higher after twelve years, largely due to indirect grid integration costs (e.g., transmission and intermittency). On the benefit side, carbon emissions are 10-25% lower, however, much of this is due to energy shifts that are separate from that of the addition of renewables to the grid (including the shift away from coal to natural gas). The cost per ton of CO2 abatement ranges from $58-$298 and is generally above $100.

Read more in “Do Renewable Portfolio Standards Deliver Cost-Effective Carbon Abatement?”