Estimating the implied cost of carbon in future scenarios using a CGE model: The Case of Colorado

Abstract

Using Colorado as a case study, we develop a state-level computable general equilibrium (CGE) model that reflects the roles of coal, natural gas, wind, solar, and hydroelectricity in supplying electricity. We focus on the economic impact of implementing Colorado's existing Renewable Portfolio Standard, updated in 2013. This requires that 25% of state generation come from qualifying renewable sources by 2020. We evaluate the policy under a variety of assumptions regarding wind integration costs and assumptions on the persistence of federal subsidies for wind. Specifically, we estimate the implied price of carbon as the carbon price at which a statelevel policy would pass a state-level cost-benefit analysis, taking account of estimated greenhouse gas emission reductions and ancillary benefits from corresponding reductions in criteria pollutants. Our findings suggest that without the Production Tax Credit (federal aid), the state policy of mandating renewable power generation (RPS) is costly to state actors, with an implied cost of carbon of about $17 per ton of CO2 with a 3% discount rate. Federal aid makes the decision between natural gas and wind nearly cost neutral for Colorado.

Effect of Natural Gas Prices on Renewable Portfolio Standard Impacts

“…Previous studies such as Hannum et al (2017) have estimated the damages associated with NOx and SO2 associated with fossil fuel electricity in Colorado to be approximately $540 and $1,052 per ton respectively using the APEEP model (Muller and Mendelsohn, 2007). However, as emissions of SO2 in particular are dramatically lower from natural gas plants than from coal plants the additional ancillary benefits (Bell et al 2008;Burtraw et al 2003) associated with the Colorado RPS are fairly modest, estimated to be between $4 and $6 million per year above and beyond the approximately $35 million per year associated with the transition-to-gas path (Hannum et al 2017). The Colorado RPS would also result in substantial reductions in CO2 emissions of potentially between 4 and 5 million tons (Hannum et al 2017).…”

The Los Angeles 100% Renewable Energy Study (LA100): Chapter 11. Economic Impacts and Jobs

“…Demand-side changes are stimulated by local household and government spending, increased business investment expenditures and regional exports, while supply-side changes stem from prices (inflation), wage and taxes. 5 For a detailed overview of regional CGE modeling, see Partridge and Rickman (2010) or for examples of CGE analysis using this model see Hannum et al (2017). Using the CGE model, we estimate net economic impacts through two basic channels: 1) changes in economic activity resulting from firms and households responding to changes in average cost of electricity, and 2) changes in economic activity resulting from changes in direct (power sector) expenditures (investment and operation) required to transition to the 100% renewable power systems simulated.…”

The Economic Effects of the Development of the Renewable Energy Industry in China

“…The impacts of renewable energy on the economy include direct and indirect ones. A large body of literature focuses on the direct impact of renewable energy [2,11,19,37,38]. Some also assess the direct and indirect impacts of renewable energy from the life cycle perspective [20,39].…”