Standards vs economic incentives

Erik Paul Johnson in Resource and Energy Economics:

Renewable portfolio standards (RPSs) have become a popular tool for state governments to promote renewable electricity generation and to decrease carbon dioxide emissions within a state or region. Renewable portfolio standards are a policy tool likely to persist for many decades due to the long term goals of many state RPSs and the likely creation of a federal RPS alongside any comprehensive climate change bill. Even though RPSs have become a popular policy tool, there is little empirical evidence about their costs. Using the temporal and regional variation in RPS requirements, I estimate the long-run price elasticity of supply of renewable electricity generation to be 2.67 (95% CI of 1.74, 3.60). Using my preferred elasticity estimate, I calculate the marginal cost of abatement from RPSs is at least $11 per ton of CO₂ compared to a marginal cost of abatement of $3 per ton in the Regional Greenhouse Gas Initiative.

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