In the last two decades, 31 states have passed renewable portfolio standards (RPS) into law that are aimed at increasing the portion of state energy that is sourced from renewable, typically non-carbon-emitting, resources. In many states, such standards were not explicitly meant to reduce greenhouse gas (GHG) emissions, although given the energy sources they promote (solar and wind, for example), emissions reductions are an expected result. The environmental economics literature, however, points out that RPS are far from the most efficient policy to reduce carbon emissions. In fact, previous econometric studies on early RPS implementation suggest that the standards have failed to decrease GHG emissions or even significantly increase renewable energy deployment. However, in a new RFF discussion paper, with RFF University Fellow Brent Sohngen of Ohio State University, we find that RPS actually have reduced carbon emissions in the United States by around 4 percent at present, and that figure is increasing.
We used data between 1997 and 2010 to identify the drivers of state carbon intensity, measured in tons of carbon dioxide emissions per dollar of gross state product. After accounting for differences in economic structure and environmental factors, we find that RPS implementation reduces state carbon intensity, mainly through an increase in electricity prices, with a $0.01/KWh increase in electricity prices leading to an approximately 1 percent decrease in state carbon intensity. The relationship between the price of electricity and carbon intensity is slightly smaller but still significant in states that have passed RPS because these states already have lower initial carbon intensities than states without RPS, causing them to be less sensitive to additional changes in the price of electricity. In addition, the standard itself also has an effect on the carbon intensity, although the effect is statistically insignificant.
We further find that the implementation of RPS during our study period has decreased overall US GHG emissions. For instance, in 2010, total carbon dioxide emissions were 3.92 percent lower than the counterfactual case, in which no RPS were passed. The effectiveness of state RPS to mitigate GHG emissions is likely to continue increasing as the state renewables requirements, which were initially quite modest, continue to become more stringent. For instance, the average annual renewable energy goal among states with RPS increases from 8.6 percent in 2010 to 22.7 percent in 2020. Although the effectiveness of renewable portfolio standards has been questioned, we assert that, even in their early stages of implementation, RPS have substantially reduced state carbon intensities and US carbon emissions as a whole.