Spatio-Temporal Heterogeneity in the Environmental Value of Renewable Energy

Abstract

The expansion of renewable energy plays a critical role in decarbonizing the electricity grid, while also providing improvements in local air quality. Ultimately, the environmental value of renewable energy hinges on characteristics (fuel type, technology, location, etc.) of the marginal plant displaced by wind or solar generation. We document and explain the roles that market forces, policy interactions, and energy infrastructure play in determining the displaced marginal generator, and thus the heterogeneous environmental value of renewables. Finally, we discuss how this heterogeneity in environmental value significantly complicates efficient regulatory approaches, with application to renewable production subsidies and green hydrogen policies.

JEL Classification: Q42, Alternative Energy Sources; Q51, Valuation of Environmental Effects; Q53, Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling; Q48, Energy: Government Policy

Keywords

renewables—wind renewables renewables—solar energy and the environment—policy and regulation energy and the environment hydrogen electricity—generation technologies electricity

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