External Impacts of Local Energy Policy: The Case of Renewable Portfolio Standards

56 Pages Posted: 2 Dec 2015 Last revised: 3 Feb 2018

Alex Hollingsworth

Indiana University Bloomington - School of Public & Environmental Affairs (SPEA)

Ivan Rudik

Cornell University - Dyson School of Applied Economics and Management

Date Written: February 2, 2018

Abstract

Renewable portfolio standards (RPSs) are state level policies that require in-state electricity providers to procure a minimum percentage of electricity sales from renewable sources. Using theoretical and empirical models, we show how RPSs induce out-of-state emissions reductions through inter-state trade of credits used for RPS compliance. When one state passes an RPS, it increases demand for credits sold by firms in other (potentially non-RPS) states. We find that increasing a state's RPS decreases coal generation and increases wind generation in outside states through this tradable credit channel. We perform a welfare simulation to evaluate the aggregate avoided damage from RPS-induced reductions in local coal-fired pollutants. Our estimates suggest that a 1 percentage point increase in a state's RPS results in up to $100 million in avoided damages over the United States from reduced pollution. We also find substantial heterogeneity in aggregate avoided damages caused by increases in different states' RPSs.

Keywords: energy, renewable portfolio standards, tradable credits, pollution, damages, co-benefits

JEL Classification: H70, Q40, Q53

Suggested Citation

Hollingsworth, Alex and Rudik, Ivan, External Impacts of Local Energy Policy: The Case of Renewable Portfolio Standards (February 2, 2018). Available at SSRN: https://ssrn.com/abstract=2697222 or http://dx.doi.org/10.2139/ssrn.2697222

Alex Hollingsworth

Indiana University Bloomington - School of Public & Environmental Affairs (SPEA) ( email )

1315 East Tenth Street
Bloomington, IN 47405
United States

HOME PAGE: http://alexjhollingsworth.com

Ivan Rudik (Contact Author)

Cornell University - Dyson School of Applied Economics and Management ( email )

Ithaca, NY
United States

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