How Much Do Renewable Portfolio Standards Promote Green Electricity?

Industrialized countries aiming to reach carbon neutrality by 2050 have several strategies for decarbonizing electricity generation. In the US, renewable portfolio standards (RPS) are among the most prominent. Most states have RPS programs that either require or encourage electricity suppliers to rely on renewable sources, such as solar and wind, for a minimum share of their electricity generation. Although RPS have been used for 30 years, their efficacy in promoting low-carbon electricity generation is still being debated because of a lack of definitive causal evidence. Between 2015 and 2019, renewable generating capacity from wind and solar increased by 40 and 164 percent respectively. What role did RPS play?

In Causal Effects of Renewable Portfolio Standards on Renewable Investments and Generation: The Role of Heterogeneity and Dynamics (NBER Working Paper 31568), Olivier Deschenes, Christopher Malloy, and Gavin G. McDonald present new evidence on the impact of RPS on renewable electricity capacity investments and generation. They analyze state-level data for the 1990–2019 period and provide source-specific evidence on the take-up of renewables.

In the average state that adopts renewable portfolio standards,
electricity generation capacity from wind energy rises by at least 600 MW.

The researchers find that on average, RPS policies increase wind generation capacity by between 600 and 1,200 megawatts (MW), an increase of about 44 percent relative to the installed wind capacity in 2019. The effect takes time to develop; most RPS-related wind investments are made at least five years after RPS adoption, and the study considers adoptions as many as 11 years after the standard takes effect. The researchers do not find any effect on investments in solar generation capacity, but given the timing of utility-scale solar deployment in the US, their data sample may not be well suited to testing for this effect.

The findings underscore the importance of accounting for gradual responses to RPS, distinguishing the effects on different sources of renewable generation, and considering the stark differences in RPS design across states. The rates at which the marginal generation costs from solar and wind have declined in the last decade are markedly different than before RPS, and so are the rates at which their shares of generating capacity have increased. The researchers conclude that if a national clean energy standard operated in the same way as existing state-level RPS, it could increase the share of US electricity generated from green sources.

— Lauri Scherer

Olivier Deschenes is grateful to the Sloan Foundation for a grant that supported this research.