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Journal article examines effectiveness of state-level energy policies

May 23, 2011

States have taken the lead in developing energy policies in the U.S., experimenting with a variety of approaches while the federal government has remained deadlocked over energy and climate policies.

Sanya Carley, an assistant professor in the School of Public and Environmental Affairs at Indiana University, examines the state-level policies and assesses their effectiveness for meeting energy and policy goals in the current issue of Review of Policy Research.

Image of Sanya Carley"The states are putting their best foot forward, and that is admirable," Carley said. "But they need to be deliberate and coordinated in their approaches in order to be effective. And there are limitations to what can be accomplished with policies at the state and regional levels."

Her article synthesizes findings from research literature and provides a summary of the current understanding of state energy policy instruments and their role in energy-policy innovation.

The article addresses state policy initiatives in terms of their effectiveness at achieving three objectives related to the production and distribution of energy: de-carbonization (reducing emissions of the greenhouse gas carbon dioxide), diversification (increasing the variety of energy types), and decentralization (reducing the size of energy systems). And it examines five policy instruments:

  • Renewable portfolio standards -- requirements that utilities generate a certain percentage of their energy supply from renewable sources such as wind and solar
  • Net metering and interconnection standards -- a system that lets customers generate electricity for their own use and receive a retail credit for supplying power to the electrical grid
  • Tax incentives -- credits or deductions for investments in renewable energy and conservation
  • Public benefit funds -- state funds, typically supported by energy surcharges, used to support renewable energy or efficiency
  • Energy efficiency resource standards -- requirements that utilities meet targets for the efficient production and distribution of energy
The article examines what lessons have been learned from a decade and a half of state experimentation, and it asks what those lessons suggest for the future role of state policy in the U.S. energy sector.

It focuses on the electricity sector, a major contributor to global climate change that accounts for roughly 40 percent of U.S. carbon dioxide emissions and 30 percent of total greenhouse gas emissions. The majority of the emissions come from large fossil-fuel plants.

Carley writes that each state policy instrument has achieved some success in meeting energy objectives. But each also has flaws; and, in some cases, different instruments have worked at cross purposes with each other.

For example, renewable portfolio standards have led to increased generation of renewable energy, such as wind power in Texas and other states. But the standards can have the unintended consequence of encouraging "carbon leakage" -- utilities with excess energy from fossil fuels simply export the power to neighboring states that don't have renewable portfolio standards.

Net metering and interconnection standards have been effective in making energy generation more decentralized and flexible.To a lesser extent, they have promoted diversification and de-carbonization. However, some states have put restrictions on net metering that make the policies ineffective.

Indiana, for example, established net metering several years ago, but only for generating facilities that were 10 kilowatt or smaller and operated by homeowners or schools, severely limiting its use. The state Utility Regulatory Commission on May 11 approved a rule change that will expand net metering to all classes of customers and to facilities up to 1 megawatt in capacity. The new rule is being reviewed by staff at the Indiana attorney general's and governor's offices before taking effect.

Carley cautions that "energy policy tools are not the same as climate policy tools." While state policies have been effective at diversifying and decentralizing energy production, the states have had less success at using energy policies, such as an renewable portfolio standards, to reduce greenhouse gas emissions.

When it comes to "de-carbonization," she writes, "regional or national policy coordination is more effective than isolated state policy efforts; and policy coordination in conjunction with a carbon price is more effective than either alternative."

The article can be seen online http://onlinelibrary.wiley.com/doi/10.1111/j.1541-1338.2011.00495.x/full.

To speak with Carley, please contact Jana Wilson, School of Public and Environmental Affairs, 812-856-5490 or wilsonjs@indiana.edu; or Steve Hinnefeld, University Communications, 812-856-3488 or slhinnef@indiana.edu.