Renewable energy subsidies have been a politically popular program over the past decade. These subsidies have led to explosive growth in wind power installations across the United States, especially in the Midwest and Texas. Renewable subsidies are largely motivated by their environmental benefits as they do not emit CO2, NOx, SO2, or other pollutants which are produced by fossil fuel generators. Given the lack of a national climate legislation, renewable energy subsidies are likely to be continued to be used as one of the major policy instruments for mitigating carbon dioxide emissions in the near future. As such, a better understanding of the impact of subsidization on emissions is imperative.
This paper introduces an approach to directly measure the impact of wind power on emissions using observed generating behavior. The quantity of pollutants offset by wind power depends crucially on which generators reduce production when wind power comes online. By exploiting the quasi-experimental variation in wind power production driven by weather fluctuations, it is possible to identify generator specific production offsets due to wind power. Importantly, dynamics play a critical role in the estimation procedure. Failing to account for dynamics in generator operations leads to overly optimistic estimates of emission offsets. Although a static model would indicate that wind has a significant impact on the operation of coal generators, the results from a dynamic model show that wind power only crowds out electricity production fueled by natural gas.
The model was used to estimate wind power offsets for generators on the Texas electricity grid. The results showed that one MWh of wind power production offsets less than half a ton of CO2, almost one pound of NOx, and no discernible amount of SO2. As a benchmark for the economic benefits of renewable subsidies, I compared the value of offset emissions to the cost of subsidizing wind farms for a range of possible emission values. I found that the value of subsidizing wind power is driven primarily by CO2 offsets, but that the social costs of CO2, would have to be greater than $42/ton in order for the environmental benefits of wind power to have outweighed the costs of subsidies.