Economics Working Papers

Publication Date

10-28-2016

Number

16012

Abstract

Renewable portfolio standards (RPSs) are state level policies that require in-state electricity providers to procure a minimum percentage of electricity sales from renewable sources. Using theoretical and empirical models, we show how RPSs induce out-of-state emissions reductions through inter-state trade of the credits used for RPS compliance. When one state passes an RPS, it increases demand for credits sold by firms in other (potentially non-RPS) states. We find evidence that increasing a state’s RPS decreases coal generation and increases wind generation in outside states through this tradable credit channel. We perform a welfare simulation to evaluate the aggregate benefits of the reductions in local coal-fired pollutants induced by RPSs. Our estimates suggest that a 1 percentage point increase a state’s RPS results in up to $100 million in gross benefits towards the United States as a whole. However, there is substantial heterogeneity in the total benefits caused by increases in different states’ RPSs.

JEL Classification

H70, Q40, Q52

File Format

application/pdf

Length

54 pages

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