Spillover Effects of Sector-Specific Renewable Energy Policies: Implications for GHG Emissions

Abstract

Jointly implemented Renewable Fuel Standard (RFS) with the state Renewable Portfolio Standards (RPSs) can interact in complex ways that affect the mix of renewable energy and its greenhouse gas (GHG) intensity used to meet the RPS and the mix of fossil fuels displaced as both policies compete for bioenergy for electricity generation and biofuel production. We quantify the spillover effects of the RFS on the GHG mitigation potential of the RPSs by developing a spatially explicit, dynamic, integrated model of the agricultural, electricity, and transportation sectors in the US to examine the mix of renewable electricity under the RPS, the extent to which it will be affected by the RFS and its consequences for GHG emissions from these sectors. We find that the implementation of the RFS with the RPSs results in spillover effects in two opposing directions (1) it lowers the share of bio-electricity relative to wind and increases the extent to which renewable electricity displaces natural gas instead of coal, and (2) it decreases the average carbon intensity of bioenergy by increasing the share of energy crops; the net result is 6% lower GHG savings from the two policies combined compared to the sum of the reductions that would have been achieved by each policy independently over the 2007-2030 period. Our analysis shows the importance of market-mediated effects of concurrently implemented renewable energy policies in determining the mechanisms and extent to which they lead to GHG benefits.