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