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Designing Renewable Electricity Policies to Reduce Emissions

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  • Fell, Harrison
  • Linn, Joshua

    ()
    (Resources for the Future)

  • Munnings, Clayton

    ()
    (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.

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Bibliographic Info

Paper provided by Resources For the Future in its series Discussion Papers with number dp-12-54.

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Date of creation: 12 Dec 2012
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Handle: RePEc:rff:dpaper:dp-12-54

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Web page: http://www.rff.org
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Related research

Keywords: renewable portfolio standard; production tax credit; investment tax credit; feed-in tariff; clean energy standard; cost-effectiveness; intermittency; wind energy; solar energy;

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Cited by:
  1. Eryilmaz, Derya & Homans, Frances, 2013. "Uncertainty in Renewable Energy Policy: How do Renewable Energy Credit markets and Production Tax Credits affect decisions to invest in renewable energy?," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150018, Agricultural and Applied Economics Association.

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