Decarbonization and Electrification in the Long Run

89 Pages Posted: 30 May 2022 Last revised: 27 Jul 2022

See all articles by Stephen P. Holland

Stephen P. Holland

University of North Carolina (UNC) at Greensboro - Bryan School of Business & Economics; University of California, Berkeley - Energy Institute

Erin T. Mansur

Dartmouth College - Tuck School of Business; National Bureau of Economic Research (NBER)

Andrew Yates

University of North Carolina (UNC) at Chapel Hill - Department of Economics

Date Written: May 2022

Abstract

Decarbonization and electrification will require a transformed electricity grid. Our long-run model of entry and exit of generation and storage capacity captures crucial aspects of the electricity industry such as time-varying demand for electricity, intermittency of renewables, and intertemporal optimization of storage. We derive several theoretical possibilities that differ in surprising ways from short-run intuition: A carbon tax can increase electricity consumption; cheaper storage can decrease renewable capacity; cheaper renewables can increase carbon emissions; and an increase in electricity demand (e.g., electrification) can decrease emissions. We calibrate the model using 2019 hourly data on demand and renewable availability for thirteen regions covering the contiguous U.S. A carbon price of $150 or more essentially eliminates carbon emissions. Given a modest decarbonization goal, a renewable subsidy performs better than a nuclear subsidy, but this ranking is reversed for an ambitious decarbonization goal. Transmission expansion yields large emissions reductions if renewable costs fall sufficiently, but policies promoting storage are unlikely to yield significant benefits. Electrifying 100% of car miles traveled (thereby eliminating gasoline vehicle carbon emissions) increases electricity-sector carbon emissions by 23-27% if vehicles are charged at night, but could decrease electricity-sector carbon emissions if vehicles are charged during the day.

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Suggested Citation

Holland, Stephen P. and Mansur, Erin T. and Yates, Andrew, Decarbonization and Electrification in the Long Run (May 2022). NBER Working Paper No. w30082, Available at SSRN: https://ssrn.com/abstract=4122811

Stephen P. Holland (Contact Author)

University of North Carolina (UNC) at Greensboro - Bryan School of Business & Economics ( email )

401 Bryan Building
Greensboro, NC 27402-6179
United States

University of California, Berkeley - Energy Institute ( email )

310 Barrows Hall
Berkeley, CA 94720
United States

Erin T. Mansur

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States
603 646 2398 (Phone)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Andrew Yates

University of North Carolina (UNC) at Chapel Hill - Department of Economics ( email )

Chapel Hill, NC 27599
United States

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