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.

Abstract: A clean energy standard (CES) is a flexible approach to encouraging a cleaner technology mix for electricity production. The most recent federal CES proposal from Senator Bingaman would transform the way electricity is produced and result in substantial reductions in CO2 emissions with small national average electricity price effects through 2025. After 2025, electricity prices would increase substantially. The alternative compliance payment (ACP) for clean energy credit will be binding, and thus actual deployment of clean energy will fall short of the intended targets and cumulative emissions reductions by 2035 will be 12 percent smaller than they would be without an ACP. The small utility exemption from the CES requirements equates to roughly $29 billion in avoided electricity expenditures by the customers of exempted utilities in 2035 alone. Excluding power generated by existing nuclear and hydroelectric facilities from CES compliance responsibility raises electricity prices in competitive regions to the benefit of owners of existing nuclear and hydro capacity.

Abstract: Efforts to limit cumulative emissions over the next century may be partially thwarted by the responses of fossil fuel suppliers. Current price-cost margins for major reserves are ample, leaving scope for significant price reductions if climate policies reduce demand for fossil fuels through conservation or substitution to clean alternatives. Most models simulating the consequences of climate policies completely disregard these supply responses. As for theoretical models, under standard assumptions they predict such strong supplier responses that climate policies may have no effect on cumulative emissions and may even leave society worse off, suffering damages from global warming sooner and with less time to adapt (the “green paradox”).We contribute to this literature by developing a richer theoretical model that takes account of the different extraction costs and emissons rates of different fossil reserves. We use this model to compare the qualitative effects of four policy options—accelerating cost reductions in the clean backstop technologies, taxing emissions, improving energy efficiency, and a clean fuel blend mandate. We also discuss the consequences of mandating carbon capture and sequestration. All policies can reduce cumulative emissions, but the backstop policy accelerates emissions while conservation policies (energy efficiency or blend mandates) delay emissions. We then calibrate the model using data on costs, reserves, and emissions factors for five major categories of oil. Using this calibrated model, we estimate the interemporal leakage rate—the percentage error in cumulative emissions reductions that would arise if no account is taken of the supply responses of oil producers. We find that conservation policies can have higher intertemporal leakage rates and backstop policies can have lower leakage than an emissions tax. Leakage rates generally decline as the policies become more stringent.

Abstract: The American Recovery and Reinvestment Act included more than $90 billion in strategic clean energy investments intended to promote job creation and promote deployment of low-carbon technologies. In terms of spending, the clean energy package has been described as the nation’s “biggest energy bill in history.” To provide a preliminary assessment of the Recovery Act’s clean energy package, this paper reviews the rationale, design, and implementation of the act. The paper surveys the policy principles for clean energy stimulus and describes the process of crafting the clean energy package during the 2008–2009 Presidential Transition. Then, the paper reviews the initial employment, economic activity, and energy outcomes associated with these energy investments and provides a more detailed case study on the Recovery Act’s support for renewable power through grants and loan guarantees. The paper concludes with lessons learned.

Abstract: Because of the global commons nature of climate change, international cooperation among nations will likely be necessary for meaningful action at the global level. At the same time, it will inevitably be up to the actions of sovereign nations to put in place policies that bring about meaningful reductions in the emissions of greenhouse gases. Due to the ubiquity and diversity of emissions of greenhouse gases in most economies, as well as the variation in abatement costs among individual sources, conventional environmental policy approaches, such as uniform technology and performance standards, are unlikely to be sufficient to the task. Therefore, attention has increasingly turned to market-based instruments in the form of carbon-pricing mechanisms. We examine the opportunities and challenges associated with the major options for carbon pricing: carbon taxes, cap-and-trade, emission reduction credits, clean energy standards, and fossil fuel subsidy reductions.

Abstract: The electricity sector is responsible for roughly 40 percent of U.S. carbon dioxide (CO2) emissions, and a shift away from conventional coal-fired generation is an important component of the U.S. strategy to reduce greenhouse gas emissions. Toward that goal, several proposals for a clean energy standard (CES) have been put forth, including one espoused by the Obama administration that calls for 80 percent clean electricity by 2035 phased in from current levels of roughly 40 percent. This paper looks at the effects of such a policy on CO2 emissions from the electricity sector, the mix of technologies used to supply electricity, electricity prices, and regional flows of clean energy credits. The CES leads to a 30 percent reduction in cumulative CO2 emissions between 2013 and 2035 and results in dramatic reductions in generation from conventional coal. The policy also results in fairly modest increases on national electricity prices, but this masks a wide variety of effects across regions.

Abstract: Biomass, a renewable energy source, has been viewed as “carbon neutral”—that is, its use as energy is presumed not to release net carbon dioxide. However, this assumption of carbon neutrality has recently been challenged. In 2010 two letters were sent to the Congress by eminent scientists examining the merits—or demerits—of biomass for climate change mitigation. The first, from about 90 scientists (to Nancy Pelosi and Harry Reid, from W.H. Schlesinger et al. May 17, 2010), questioned the treatment of all biomass energy as carbon neutral, arguing that it could undermine legislative emissions reduction goals. The second letter, submitted by more than 100 forest scientists (to Barbara Boxer et al. from Bruce Lippke et al. July 20, 2010), expressed concern over equating biogenic carbon emissions with fossil fuel emissions, as is contemplated in the Environmental Protection Agency’s Tailoring Rule. It argued that an approach focused on smokestack emissions, independent of the feedstocks, would encourage further fossil fuel energy production, to the long-term detriment of the atmosphere. This paper attempts to clarify and, to the extent possible, resolve these differences.

Abstract: Three types of policies that are prominent in the federal debate over addressing greenhouse gas emissions in the United States are a cap-and-trade program (CTP) on emissions, a renewable portfolio standard (RPS) for electricity production, and tax credits for renewable electricity producers. Each of these policies would have different consequences, and combinations of these policies could induce interactions yielding a whole that is not the sum of its parts. This paper utilizes the Haiku electricity market model to evaluate the economic and technology outcomes, climate benefits, and cost-effectiveness of three such policies and all possible combinations of the policies. A central finding is that the carbon dioxide (CO2) emissions reductions from CTP can be significantly greater than those from the other policies, even for similar levels of renewable electricity production, since of the three policies, CTP is the only one that distinguishes electricity generated by coal and natural gas. It follows that CTP is the mostcost-effective among these approaches at reducing CO2 emissions. An alternative compliance payment mechanism in an RPS program could substantially affect renewables penetration, and the electricity priceeffects of the policies hinge partly on the regulatory structure of electricity markets, which varies across the country.