Association for Public Policy Analysis & Management

Thirty states have adopted renewable portfolio standards (RPS) that set targets for renewable energy generation by mandating electric power utilities to obtain a minimum percentage of their power from renewable sources. To date, there have been a number of studies that examine the effectiveness of RPSs on achieving these outcomes. Overall, these studies find that RPSs are associated with increase in renewable power generation and decreases in emissions, but none of the studies take into account non-random adoption of these programs. Furthermore, none of these studies empirically consider potential mechanisms through which these policies are effective. This is the first study to empirically estimate the impact of an RPS on state level electricity prices, renewable electricity generation and emissions while considering the non-random adoption of these policies.

 Using a number of empirical specifications including synthetic controls methods, we find little evidence that states who adopt RPSs have significant increases in renewable generation relative to non-RPS states with similar economic and political conditions and similar renewable energy generation potential. In fact, a simple descriptive analysis reveals that RPS states have experience slower renewable energy growth than non-RPS states. We do, though, find strong evidence of electricity price increases in RPS states relative to non-RPS states. More specifically, empirical estimates suggest that RPSs are associated with a 10.9 to 11.4 percent increase in electricity prices compares to a plausible counterfactual state. We also find that RPSs are associated with a 7.2 to 7.5 percent decrease in electricity demand that is likely due to the increase in electricity price. Therefore, comparison of these results implies a long run price elasticity of approximately -.51 to -.63. We find weak evidence of decreases in CO2 emissions associated with electricity generation. Results suggest that these effects are likely realized through the channel of demand reduction associated with increased prices, not offsets in emissions associated with renewable energy generation. Results are robust to placebo treatments, falsification outcomes, and incorporation of policy heterogeneity.

While the specific implications of state level RPS policies as well as the potential for a federal RPS will likely be debated for years to come, research that analyses the effect of RPSs on outcomes of interest must consider non-random selection into these policies. Comparisons of the change in outcomes before and after policy implementation or comparisons of RPS and non-RPS states is not sufficient to holistically understand the effect of these policies on electricity markets. Furthermore, research should be concerned not only with the most visible outcomes of RPSs, namely increase in renewable energy generation and decrease in emissions, but should also focus on other effects such as increases in electricity prices and subsequent demand decreases. Understanding the intricacies of how effective RPSs are at achieving emissions reductions, and the channels through which these reductions are achieved relative to other potential policies, is a necessary step forward towards the goal of carbon emissions reductions.