The Economic Costs of Reducing Greenhouse Gas Emissions Under a U.S. National Renewable Electricity Mandate
Published in: Energy Policy, v. 39, no. 5, May 2011, p. 2730-2739
Posted on RAND.org on January 01, 2011
The electricity sector is the largest source of greenhouse gas emissions (GHGs) in the U.S. Many states have passed and Congress has considered Renewable Portfolio Standards (RPS), mandates that specific percentages of electricity be generated from renewable resources. We perform a technical and economic assessment and estimate the economic costs and net GHG reductions from a national 25 percent RPS by 2025 relative to coal-based electricity. This policy would reduce GHG emissions by about 670 million metric tons per year, 11 percent of 2008 U.S. emissions. The first 100 million metric tons could be abated for less than $36/metric ton. However, marginal costs climb to $50 for 300 million metric tons and to as much as $70/metric ton to fulfill the RPS. The total economic costs of such a policy are about $35 billion annually. We also examine the cost sensitivity to favorable and unfavorable technology development assumptions. We find that a 25 percent RPS would likely be an economically efficient method for utilities to substantially reduce GHG emissions only under the favorable scenario. These estimates can be compared with other approaches, including increased R&D funding for renewables or deployment of efficiency and/or other low-carbon generation technologies.