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Electric Power, Electric Vehicles, and Climate Policy

Paper Session

Friday, Jan. 7, 2022 10:00 AM - 12:00 PM (EST)

Hosted By: American Economic Association
  • Chair: James H. Stock, Harvard University

Carbon Policy and the Emissions Implications of Electric Vehicles

Kenneth Gillingham
,
Yale University
Marten Ovaere
,
Ghent University
Stephanie M. Weber
,
Yale University

Abstract

Will a carbon tax improve or worsen the welfare consequences of policies to promote electric vehicles? This paper examines when a complementarity could exist between carbon pricing and high electric vehicle adoption. We first use a simple conceptual framework to show that under moderate carbon pricing, shifts in the dispatch of electricity generation and delayed coal plant retirements can reduce the welfare benefits of high electric vehicle penetration. We analyze electricity generation in recent years to show that in several regions of the U.S., this interaction effect is likely to occur. Using empirical variation in the relative prices of coal and natural gas, which can be matched to different levels of a carbon pricing scheme, we find that increased carbon prices increase the share of coal generation on the margin and, therefore, the emission intensity of marginal generation. Under moderate carbon prices like those in effect and under consideration today, additional electric vehicles will be more likely to be charged with coal-fired generation than they would be in the absence of carbon pricing. We confirm this finding using a detailed dynamic model that includes the transportation and power sectors. Over a multi-decadal time horizon, increased electric vehicle adoption slows the retirement of coal plants otherwise made uneconomic by moderate carbon prices. The effect is robust to reductions in renewable energy prices consonant with recent history and will be exacerbated if the electric vehicle adoption timeline is accelerated. At much higher carbon prices, the effect reverses because coal generation is retired anyway.

Robust Decarbonization of the U.S. Power Sector: Policy Options

James H. Stock
,
Harvard University
Daniel Stuart
,
Harvard University

Abstract

A key step towards decarbonizing the US economy is decarbonizing the power sector. Proposals for how to do so range from an economy-wide carbon tax to sectoral standards to simply relying on falling renewables prices without significant policy changes. While there is urgency, there is also considerable uncertainty about future economic and technological conditions. To reliably achieve deep decarbonization of the US power sector, a candidate policy must perform robustly across a range of possible future trajectories of demand, fossil fuel prices, and prices of new wind and solar capacity.

Using a modified version of the NREL ReEDS model, we study ten alternative policies under current discussion. We evaluate each policy using three criteria. Our first criterion is whether a candidate policy achieves robust decarbonization by 2035, which we define as reducing carbon emissions in every demand/price scenario by at least 80% by 2035, relative to 2005. Second, we estimate the cost effectiveness of a policy by comparing it to an emissions-equivalent efficient policy. Third, we conduct a limited cost-benefit test by comparing the policy’s average abatement cost over 2022-2035 to the Social Cost of Carbon.

The two robustly successful policies are a tradeable performance standard and a hybrid Clean Electricity Standard with a 100% clean target, partial crediting of gas generation, and a $40/mton CO2 alternative compliance payment backstop. Both are nearly as cost effective as the emissions-equivalent efficient policy. A $40 carbon tax nearly achieves the robust 80% threshold and, in most scenarios, drives deep decarbonization. A 90% CES (without partial crediting) fails to achieve robust 2035 decarbonization because it need not drive coal out of the system. Simply extending renewable energy tax credits, which are set to expire, does not drive significant decarbonization in most scenarios, nor does relying on increased ambition in green-leaning states.

Why Are Marginal CO2 Emissions Not Decreasing for U.S. Electricity? Estimates and Implications for Climate Policy

Stephen Halland
,
University of North Carolina-Greensboro
Matthew Kotchen
,
Yale University
Erin Mansur
,
Dartmouth College
Andrew Yates
,
University of North Carolina-Chapel Hill

Abstract

This paper makes three contributions at the intersection between electricity generation and climate policy. First are estimates of marginal CO2 emissions from electricity generation in the United States using the most recently available and comprehensive dataset. The estimates vary by region, hour of the day, and year-to-year over the last decade. Second, despite a large decrease in average emissions over the last decade (28% nationally), marginal emissions have not decreased but rather increased slightly (7% nationally). We show that underlying these trends is primarily a shift toward greater reliance on coal to satisfy marginal electricity use. We also illustrate how empirical estimates of marginal emissions are not only useful for short-run policy analysis; they also provide a straightforward, transparent tool for predicting future CO2 implications of electricity-shifting policies, such as vehicle electrification and renewable energy targets

A strength of our methodological approach is its basis in observed rather than simulated patterns of electricity dispatch. This makes the estimates well-suited for evaluating the short-term emissions impacts from policies such as the ones described above. Nevertheless, we show here even greater applicability of marginal emissions estimates: they can serve as a sufficient statistic for making forecasts about longer-term impacts of load and generation shifts on emissions relative to reference case scenarios. We evaluate external validity of the approach with comparisons between alternative U.S. Energy Information Administration (EIA) forecasts based on the Annual Energy Outlook 2021. We then use the approach to analyze policy scenarios for electrification of the light-duty vehicle fleet in combination with various targets for wind and solar generation of electricity.

Power Plants, Air Pollution, and Health

Christopher R. Knittel
,
Massachusetts Institute of Technology
Konstantinos Metaxoglou
,
Carleton University
Bora Ozaltun
,
Microsoft Research

Abstract

Since 2008, the amount of coal used for electricity generation in the United States has decreased by more than a third. It has been replaced by technologies that emit less pollution---mostly natural gas, but also wind and other renewables. Multiple government policies have targeted emissions from electric power plants, but the main driver of this move away from coal has been the declining price of natural gas due to hydraulic fracturing (fracking), which dramatically lowered the cost of natural gas extraction and created what has become known as the shale gas boom.

We estimate the impact of this shift on local pollution and health outcomes. Relative to natural gas, coal combustion emits more sulfur dioxide, nitrogen oxides, and fine particulate matter. Furthermore, emissions can vary widely by coal plant depending on the grade of coal combusted, the type of boiler used, and the emission controls in place.

In this paper, we estimate pollution and mortality effects due to the reduction in coal power plant emissions, but an increase in natural gas emissions, in the aftermath of the boom. In addition to the net effect, we pay particular focus on the which communities benefited from this switch and which communities suffered. Our identification strategy relies on fixed-effects OLS and IV regressions. Our IV strategy leverages pipeline networks and the prospects for fracking upstream from pipelines.

We find significant increases in pollution around coal plants, but increases in pollution levels near natural gas plants. Population-weighted pollution increased. Health outcomes are currently being estimated.
Discussant(s)
Jing Li
,
Massachusetts Institute of Technology
Catherine Hausman
,
University of Michigan
Daniel Kaffine
,
University of Colorado
Edson Severnini
,
Carnegie Mellon University
JEL Classifications
  • Q4 - Energy
  • H0 - General