From RPS to Carbon: An Evolutionary Proposal

Abstract

A renewable portfolio standard (“RPS”) has been adopted in some form by 38 states and the District of Columbia. These laudable policy initiatives have now outlived their usefulness. We propose a transition to an innovative carbon-based standard that will better serve the objective of avoiding the worst ravages of climate disruption while preserving the value of existing Renewable Energy Credits (“RECs”) and also avoiding disruption of existing contractual relationships. This new clean energy standard, a “carbon reduction standard” (“CRS”) would be based on a state-wide target for the average carbon emissions per megawatt hour (“MWh”) of electricity generation. The target average carbon emissions would be lowered by regular increments over time to achieve zero net carbon by a fixed date. Electric generating resources with emissions lower than the target average would be entitled to “Carbon Reduction Credits” (“CRCs”) much as they are now entitled to RECs. Electric generating resources that exceed the target average would be required to purchase and retire CRCs, much as electricity sellers do now. This evolution is suggested principally by our changing understanding of the policy goals, but it also provides an opportunity to restructure the product, CRCs, to avoid some of the pitfalls of its predecessor.

The Article discusses in detail the policy backdrop, the operation of a CRS program, and the transition from the RPS. It then explores the impact on generator incentives and on wholesale and retail electricity prices, and it draws comparisons with other policy proposals, including cap and trade.

Keywords: Clean energy standard, CES, RPS, renewable, nuclear, CRS, climate change, climate disruption, carbon reduction standard, CRS, electricity generation, renewables, solar, wind, CCS, carbon capture and sequestration, greenhouse gases, GHG, emissions trading, market-based, carbon price,comma separated]

JEL Classification: K32, O38, O44, Q5