From the dawn of the Industrial Revolution to today’s energy intensive world, carbon dioxide (CO2) emissions, a leading cause of climate change, have skyrocketed. A recent report from the Intergovernmental Panel on Climate Change (IPCC) warns governments that temperatures must be kept to no more than 1.5 degrees (C) warmer than preindustrial levels by the end of the century. The potential damage of surpassing that mark includes catastrophic disasters, such as rising sea levels, increased floods, prolonged droughts, devastating wildfires, and possibly a “mass biodiversity collapse.” Despite a significant drop in CO2 emissions in the spring of 2020 because of stay-at-home orders imposed in many parts of the world, experts warned that this dip would not be enough to correct the Earth’s course, and recent data further suggest that CO2 emissions may be returning to pre-pandemic levels as economies reopen.
Though experts warn it will be difficult to make the necessary changes, it is not impossible. In fact, inaction will ensure only the worst and most disastrous climate change outcomes. Necessary changes will include reimagining how energy is produced and consumed on a grand scale and will require significant buy-in, not only from nations across the world, but states and local governments, as well as people at home.
To help identify policies that can mitigate climate change and invest in an environmentally sustainable future, we are exploring different domestic and international energy and environmental policies to see how they measure up with their intended purposes. First is the Renewable Portfolio Standard (renewable standard), a state-level policy currently enacted by 30 states and the District of Columbia. This post will outline the policy’s stated goals, examine differences in design across states, and explore evidence of their efficacy.
What is a Renewable Portfolio Standard?
A renewable standard is a state policy that requires electric utilities—those that supply electricity to the grid—to supply a specific amount or share of renewable electricity by a certain year. Most standards set interim goals and ramp up renewable electricity targets over time. If a utility fails to meet the requirements, they must pay an alternative compliance payment, i.e., pay a penalty. Not every state has a formal alternative compliance payment system, but state-regulating entities can impose penalties on utilities that fail to comply. Such is the case in California and Hawaii.
Advocates of renewable standards generally use straightforward messaging, claiming that by investing in renewable energy, we can transition away from dirtier, carbon-emitting fossil fuels. Advocates also tend to frame renewable standards as having multiple benefits. They claim these policies support the development of renewable energy technologies, diversify the energy supply, promote decarbonization, support economic development and job creation, and lead to public health gains in the long run. Critics, however, believe these policies are a suboptimal approach to achieving their intended goals and are “largely symbolic.” The reality of these policies, while perhaps still promising, is far more nuanced.
How Do State Renewable Portfolio Standards Differ?
Renewable standards are complex policies that differ from state to state―no two are the same. For example, New York’s standard requires 70 percent renewable electricity by 2030 and Michigan’s standard requires 15 percent renewable energy by 2021. Differences in design extend beyond just electricity targets and timelines, and also include which energy sources qualify as renewable, which types of utilities must comply, and how compliance enforcement is structured. The map below shows which states have adopted a renewable standard and the differences in their designs.
Renewable Portfolio Standards by State
Renewable standards are primarily aimed at sparking investment in newer and underutilized forms of renewable technology, such as wind and solar, in order to diversify the energy supply. Consequently, most states place limits on hydropower despite it being a renewable energy source, since hydropower is an already well-established technology. In addition, construction of new hydropower can have significant adverse environmental impacts on fisheries and wildlife, which would mitigate some of the environmental goals of a renewable standard. Also, some states’ standards are not strictly limited to renewable energy and can include alternative or even fossil fuel energy sources, such as Pennsylvania’s standard, which includes waste coal and other coal-based technologies.
States often divide energy resources into classes or tiers. Preferred energy sources tend to be in the first class or tier and make up a larger share of the overall portfolio, while energy sources in subsequent classes tend to make up a smaller share of the overall goal. States can also add carve-outs, which specify a subtarget within the overall goal that should be fulfilled by a particular technology.
Another common component of a renewable standard is the use of renewable energy certificates or credits (RECs). RECs are a tradeable commodity that certifies one megawatt hour of electricity generated from renewable sources. There is no way of knowing exactly how electricity was generated once it reaches the grid unless there is an REC. Homeowners, businesses, and utilities can purchase RECs from the energy generators if they want to certify that they have purchased power that was generated by a renewable source. Utilities who must comply with renewable standards can purchase in-state or out-of-state RECs to document their compliance with the standards.
Some states also employ credit multipliers, which positively or negatively affect the value of the RECs, depending on the technology used to generate electricity. Credit multipliers can be creative and unique, too. North Carolina, for example, includes a credit multiplier up to the first 20 megawatts generated at biomass facilities to support energy generated from poultry waste.
States often craft resource tiers, carve-outs, and RECs in ways that promote in-state development to keep economic benefits localized. For example, Arizona has both distributed generation and solar carve-outs, which ensures the renewable electricity is generated within the state. However, while the in-state generation requirement incentivizes local investment in renewable electricity, it can be more expensive because it restricts a utility’s ability to purchase potentially cheaper out-of-state renewable electricity. This can have an adverse effect on consumer electricity prices, as we will see under the section “Are Renewable Standards Effective?”
Why are State Renewable Portfolio Standards Different?
There are a variety of competing factors that influence policy design. Here, we will look at two of the more prominent ones: a state’s renewable energy resource potential and political considerations.
States with a majority Democratic legislature, the presence of organized environmental groups, and a high renewable energy potential are more likely to enact a renewable standard…
A leading factor in the design of renewable standards is a state’s renewable energy resource potential, which is the total achievable amount of energy generation from renewables given a state’s environmental characteristics and a technology’s operating performance. For example, Southwestern states have a greater renewable energy resource potential for photovoltaic solar energy because these states have more hours of direct sunlight per year and can capture more solar energy. Southwestern states including Arizona, New Mexico, and Texas each have a renewable standard.
Other influential factors are the political ideology of decisionmakers, the makeup of power producers, and the presence of organized environmental groups―each can have significant effects on whether a state adopts a renewable standard. States with a majority Democratic legislature, the presence of organized environmental groups, and a high renewable energy potential are more likely to enact a renewable standard than states that don’t fit those criteria. Not surprisingly, perhaps, the greater the share of natural gas used to generate electricity in a state, the less likely that state will adopt a renewable standard.
There are also broader sets of influences that affect the development of renewables and the design of a renewable standard. Cheaper costs for renewable electricity can help accelerate the growth of renewables. Federal and state tax credits that are independent of renewable standards can influence the growth of renewables, as well. Ultimately, states that use renewable standards design their policies in ways that reflect these different market and regulatory factors.
Are Renewable Portfolio Standards Effective?
As we’ve seen, renewable standards are unique policies that are highly customizable, but are they effective energy policy tools or simply “symbolic” legislation? To answer that, we evaluate the aggregate effect state renewable standards have had based on the following criteria: the addition of renewable energy to the grid, reduction on carbon emissions, and economic impact on states and consumers.
According to the Lawrence Berkley National Laboratory, nearly half of the growth of non-hydropower renewable electricity generation and capacity has been in states with renewable standards. But, since the development of renewables nationwide outpaced what was required by law, it’s difficult to separate the role of regulation, technological advancements, and market forces in the growth of renewable technology.
Renewable standards are primarily aimed at sparking investment in newer and underutilized forms of renewable technology, such as wind and solar…
The National Renewable Energy Laboratory, however, measured the growth of renewables between 2001 and 2007 and found that 11 of the 15 states that performed better than the national average for both renewable energy use and reduced fossil fuel consumption had a renewable standard in place. There is a significant and positive relationship between an enacted renewable standard and the amount of additional renewable capacity. The relationship could be even stronger, but lack of enforcement and alternative compliance payments allow utilities to avoid adding more renewable capacity to the grid. However, while utilities can opt to make payments instead of installing additional capacity, the proceeds are generally directed to funds to finance future renewable energy and environmental conservation projects, such as is the case with Vermont’s Clean Energy Development Fund.
Most studies also agree that renewable standards reduce CO2 emissions, but potentially at higher costs compared to other policies. This is, in part, because renewable energy is still generally more expensive than fossil fuels due to higher capital costs and intermittency. One study showed that each ton of CO2 abated under a renewable standard costs can range from $115-$530 per ton, which is 3 to 12 times the social cost of carbon estimated by the Obama Administration. Another study by researchers at the Electric Power Research Institute found that least-cost alternative policies, which include a broader list of eligible energy sources like nuclear and natural gas, are just as effective at reducing emissions as a renewable standard for about half the current cost.
A further critique of renewable standards is that the added costs of installing new renewables are eventually passed onto the consumer. One study found consumers in states with renewable standards paid 1.3 to 2 cents per kilowatt hour more for electricity―an increase of 11 to 17 percent. The National Laboratory for Renewable Energy calculated electricity costs between 2015 and 2050 and found similar results: electricity prices will increase by 1 cent per kilowatt hour of renewable energy assuming existing renewable standards remain, and an increase of 4.2 cents per kilowatt hour assuming more aggressive renewable standards are enacted. Based on 2018 average residential energy consumption, the price increase is equivalent to an additional $110 to $440 spent on electricity per year.
It should be noted that the higher relative costs for renewable energy implementation depends on externalities not being figured into the costs of fossil fuels, and may be offset in the long run because reduced air pollution and improved air quality have significant and lasting public benefits. According to the International Renewable Energy Agency, if the share of renewables in the global energy mix doubles by 2030, it could save up to $4.2 trillion dollars in fossil fuel externalities―outpacing the cost of renewables by as much as 15 times.
And despite the concerns that renewable standards are costly, there is evidence that the policy is a job creator. The National Renewable Energy Laboratory estimates an increase of 134 to 328 thousand renewable energy jobs by 2050 under existing and more stringent renewable standard scenarios compared to if there were no enacted renewable standards―a 20 to 47 percent increase.
…the higher relative costs for renewable energy implementation depends on externalities not being figured into the costs of fossil fuels…
The general consensus of the literature suggests that renewable standards do add more renewables. However, their impacts on CO2 emission reduction is relatively costly with respect to the initial necessary investments. These improvements require upfront costs for utilities who must invest in renewable energy procurement and upgrades for transmission distribution, as well as downstream costs that raise consumer’s electricity bills. Nonetheless, evidence suggests that renewable standards serve as a boost for state economies in the long-term through investment in an emerging industry, the creation of jobs, and public health offsets.
The Future of Renewable Standards
Taken altogether, renewable standards appear to achieve their intended goals with respect to increasing renewable energy generation. They may not be the best bang for the buck in the short-term to lower CO2 emissions, but they do carry longer-term economic, environmental, and public health benefits for states that choose to implement them. Regardless, states continue to use and update renewable standards. One reason for this is public opinion: a 2017 survey found 81 percent of Americans support renewable electricity mandates, according to the National Surveys on Energy and Environment.
Within the next five years, 12 states will reach or already have reached the final year of their policy’s timeline. A general trend in recent years, however, is that states often extend and increase their renewable standard obligation and augment it with clean(er) energy, or carbon-free energy standards. New York’s Clean Energy Standard has done just that, mandating 100 percent carbon free electricity systems by 2040, in addition to 70 percent renewable electricity by 2030.
RPS Year of Enactment to Year of Achievement
States will likely continue to use and update renewable portfolio standards in the absence of further policies or guidance from the federal administration on how to deal with climate change. In fact, the Trump Administration continues to flout energy and environmental concerns as evidenced by the consistent rollbacks of environmental protections, such as permitting higher greenhouse gas emissions for power plants and the auto industry.
Despite the current administration’s position on energy and environmental policy, there could be a future national renewable standard. US Senator Tom Udall of New Mexico introduced renewable standard legislation in 2019 that would set the national standard at 50 percent renewable energy generation by 2035. Although not likely to pass given the current political landscape, it remains possible the federal government can learn best practices from the states and implement a national renewable standard at some later date.
It is important to remember that renewable portfolio standards are just one component of climate policy and there is a need for more research. As renewable standards become more well-established, we will be able to analyze more data and glean a clearer picture of their benefits and costs over the long-term. More data will be especially helpful since directly comparing renewable standards across states is difficult given their differing designs and benchmarks. Future studies can consider these differences in timing and the updates states continue to make to their policies.
ABOUT THE AUTHOR
Alexander Morse is a policy analyst and special assistant to Communications at the Rockefeller Institute of Government.
 Non-hydropower renewable capacity.
 The social cost of carbon is a monetary measurement of each ton of emitted CO2 has on the environment and society and is used to inform policymaker’s decisions on carbon abatement policies and can be calculated using different assumptions about climate change and other energy-intensive sectors. For instance, in 2015, the Institute for Policy Integrity surveyed 365 leading climate experts and the consensus suggested that the “models used to calculate the social cost of carbon are likely underestimating climate damages,” and are set too low. Meanwhile, the Trump administration placed a value of $1-$6 per ton.