The costs and value of renewable portfolio standards in meeting decarbonization goals

By David Young and John Bistline in Energy Economics, Volume 73, June 2018.

"Highlights

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We evaluate the costs and CO₂ reductions of potential renewable portfolio standards.

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We compare RPSs to least-cost portfolios to achieve equivalent CO₂ reductions.

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RPS policies may cost twice that of a technology-neutral portfolio for the same CO_2.

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RPS policies displace less coal generation than technology-neutral policies.

Abstract

Renewable portfolio standards are common policy instruments deployed in many U.S. states and other countries. Arguably the primary driver for these standards is their use as a tool to reduce carbon dioxide (CO₂) emissions from the electric sector. The cost-effectiveness of this mitigation approach relative to other policies is hotly disputed. In this paper, we use the US-REGEN model to evaluate the costs and CO₂ emissions reductions of existing and potential renewable portfolio standards in the United States, and to compare these mandate-based policies to the least-cost resource portfolio that achieves equivalent CO₂ reductions. We find that, in most cases, renewable portfolio standards are approximately twice as costly as the equivalent least-cost portfolio for achieving CO₂ reductions, although the ratio can be much higher for standards with lower abatement. Furthermore, the effectiveness of renewable portfolio standards at reducing CO₂ emissions depends strongly on future natural gas prices. Technology-neutral instruments to achieve CO₂ reductions usually replace existing coal generation with the cheapest alternative, given natural gas and CO₂ prices. A mandate for renewables is higher cost both because renewable generation may not be the cheapest alternative to coal generation, and because adding renewable capacity often displaces non-coal generation on the margin when there is no CO₂ price."