RFF’s Newell and Keyes on Power Markets and State Policies

WASHINGTON—The United States already is seeing important shifts in federal energy policy even in the early days of the Trump administration. Steps to move away from previous efforts to address the risks of climate change are clearly apparent. But according to a new issue brief by Resources for the Future (RFF) President Richard G. Newell and Research Assistant Amelia Keyes, changes in the power sector will be more determined by both market forces and state-level policies.

In Electric Power Markets and State Policy: Dynamic Shifts amid Federal Policy Uncertainty, the authors frame the big challenges of our changing energy markets and identify some of the likely considerations. The brief, based on a recent speech by Dr. Newell before the Electric Power Research Institute, lists the underlying energy dynamics that will remain central to electric power issues “regardless of changing White House policy.” Those dynamics range from the shale gas revolution to the falling costs of wind and solar electricity production.

Newell and Keyes note that, “we can expect many states to continue their own efforts to mitigate GHG emissions and increase clean energy generation.” They emphasize that over the next few years, these efforts will play out in three key areas: electricity market policy, climate policy, and clean-energy technology policy.

The issue brief also underscores the fact that, “The United States has a rich history of state leadership in designing environmental policies and demonstrating their feasibility.” It then takes up a number of state and regional innovations. To cite one: Using carbon prices in integrated resource plans (IRPs) is an efficient way to begin aligning business decisions with the incentives that future climate policies may create. Since many IRPs projected carbon costs using scenarios considering compliance with the Clean Power Plan, its rollback may increase uncertainty in scenario modeling. The coauthors point to RFF Visiting Fellow Joe Kruger’s recent report that state regulators can help address this uncertainty by providing guidance to utilities on how to use carbon pricing in IRPs. Minnesota, for example, requires the use of an externality value for carbon in IRPs.

They further note that RFF is in the process of launching a research initiative to respond to recent recommendations by the National Academy of Sciences for updating the social cost of carbon to ensure it reflects the best available scientific evidence.

The issue brief concludes that the shift toward low- and zero-carbon electricity resources and flat total electricity demand are driven to a significant degree by market forces—and these trends “are not going to disappear in the next few years.”

Read the full brief: Electric Power Markets and State Policy: Dynamic Shifts amid Federal Policy Uncertainty.