New Report on State Policy Options to Price Carbon from Electricity

WASHINGTON, DC—States are providing most of the impetus for reducing greenhouse gas emissions and encouraging clean energy development. Currently 13 states have (or are on the verge of having) carbon pricing implemented as cap-and-trade programs.

A new report released today by Resources for the Future (RFF) investigates the opportunity for the expansion of carbon pricing in six new states. It examines the introduction of a cap-and-trade program that borrows the architecture of the Regional Greenhouse Gas Initiative (RGGI), which aims for a 30 percent reduction (3 percent per year) in emissions over the next decade.

The report’s title is “State Policy Options to Price Carbon from Electricity.” The authors are RFF Senior Fellows Dallas Burtraw and Karen Palmer, Fellow Anthony Paul, and Senior Research Assistant Paul Picciano.

The researchers separately investigate North Carolina and Pennsylvania, which are contiguous to other RGGI states and thus potential electricity trading partners. They also consider a group of four upper Midwestern states: Minnesota, Wisconsin, Illinois and Michigan.

They find that the cost of achieving these levels of emissions reductions is small, as measured by the price of emissions allowances and the incremental cost of resources needed to achieve emissions targets. Carbon pricing contributes about 21 percent of the emissions reductions that are achieved, and about 9 percent of the emissions reductions would be achieved even without a policy due to transitions in the electricity sector. The authors conclude, “The low costs and low allowance prices of achieving the emissions caps suggest more ambition may be plausible without incurring substantial cost.”

The authors also evaluate policies to directly promote renewable energy. They find that their “modeling indicates that carbon pricing will be more effective at reducing emissions than a policy focused exclusively on encouraging increased electricity generation from wind and solar.” However, they note, “A policymaker might view technology policies as useful to develop a strong clean-generation infrastructure and to provide opportunities to learn about grid integration of renewables, which will enable the state to achieve greater emissions reductions in the long run. Both approaches contribute to emissions reductions and renewables deployment, and a combination of approaches is possible.”

Read the full report here.