Designing Renewable Electricity Policies to Reduce Emissions

Resources for the Future Discussion Paper No. 12-54

29 Pages Posted: 9 Jan 2013

See all articles by Harrison G. Fell

Harrison G. Fell

Resources for the Future

Joshua Linn

Resources for the Future

Clayton Munnings

Resources for the Future

Date Written: December 12, 2012

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

JEL Classification: Q40, Q54, L94

Suggested Citation

Fell, Harrison G. and Linn, Joshua and Munnings, Clayton, Designing Renewable Electricity Policies to Reduce Emissions (December 12, 2012). Resources for the Future Discussion Paper No. 12-54, Available at SSRN: https://ssrn.com/abstract=2197979 or http://dx.doi.org/10.2139/ssrn.2197979

Harrison G. Fell

Resources for the Future ( email )

1616 P Street, NW
Washington, DC 20036
United States
202-328-5005 (Phone)

Joshua Linn (Contact Author)

Resources for the Future ( email )

1616 P Street, NW
Washington, DC 20036
United States

Clayton Munnings

Resources for the Future ( email )

1616 P Street, NW
Washington, DC 20036
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
72
Abstract Views
630
rank
439,985
PlumX Metrics