Promoting Clean Energy in the American Power Sector: A Proposal for a National Clean Energy Standard Joseph E. Aldy Harvard Kennedy School Resources for the Future National Bureau of Economic Research July 2011 National Clean Energy Standard Technology-neutral performance goals • Metric tons of CO2 per megawatt hour Tradable clean energy credits • Power plants create and trade credits Compliance • Alternative compliance: federal clean energy credits Clean energy fund • Finance energy R&D U.S. Power Emission Intensity metric ton CO2/MWh 1.0 0.9 0.8 0.7 0.6 0.5 NCES Goals 0.4 0.3 0.2 0.1 0.0 1949 1954 1959 1964 1969 1974 1979 1984 1989 1994 1999 2004 2009 2014 2019 2024 2029 2034 Investment Incentive Federal clean energy credit price • $15 per credit in 2015 ramping up to $30 in 2025 Federal credits will effectively set tradable credit price • $21/MWh average return for renewable thru 2024 Implicit price on CO2 pollution equal to its social cost • By 2025, the credit price will be consistent with the economic damages caused by CO2 emissions Electricity Rate Impacts Federal clean energy credit price • $15 per credit in 2015 Upper bound U.S. electricity rate impact in 2015 • About one-quarter of a cent per kWh (3% increase) Regional electricity rate impacts • About two out of three states would have lower electricity prices in 2015 under NCES than in 2008 Clean Energy Fund Clean energy fund would support energy R&D • e.g., ARPA-E Federal clean energy credit revenues directed to fund • $2 billion in 2015, ramping up to $5 billion in 2025 Balance of revenues to finance reductions in tax rates and/or deficit reduction Survey Evidence of NCES Support In a recent, nationally representative survey undertaken with Matt Kotchen and Tony Leiserowitz, we asked: The federal government is considering a Clean Energy Standard that would require electric power companies to obtain 80 percent of their energy from clean sources by the year 2035. Eligible sources of clean energy would include [randomize treatment]. If this policy were to cost your household $[randomize BID amounts] more each year in higher electricity bills, would you support or oppose this policy? Key Findings from Survey Median WTP for a NCES is $165 in higher annual electricity bills (13% increase) Logit model shows that program cost, set of eligible technologies, respondent age, political affiliation, ethnicity impact probability of policy support Median voter simulation model of Senate and House • 218 Members support with a ~$50 annual cost • 60 Senators support with a ~$60 annual cost (~5% increase) Promoting Clean Energy in the American Power Sector The Hamilton Project Discussion Paper 2011-04 The Hamilton Project Policy Brief 2011-04 www.brookings.edu/papers/2011/05_clean_energy_aldy.aspx “Willingness to Pay and Political Support for a National Clean Energy Standard,” forthcoming working paper