Why Do States Adopt Renewable Portfolio Standards?: An Empirical Investigation

Renewable portfolio standards (RPSs) for electricity generation are politically popular in many U.S. states although economic analysis suggests they are not first-best policies. We present an empirical analysis of the political and economic factors that drive state governments to adopt an RPS, and the factors that lead to the inclusion of instate requirements given the adoption of an RPS. We find that states are more likely to be early adopters of an RPS if they have high renewable resource potential, a strong Democratic presence in the state legislature, an organized renewable energy industry within the state, low reliance on natural gas, and a restructured electricity market. Although advocates claim an RPS will stimulate job growth, we find that states with high unemployment rates are slower to adopt an RPS. Local environmental conditions and preferences have no significant effect on the timing of adoption. In-state requirements are more likely in states with little existing renewable generation and without a restructured electricity market. Overall, RPS adoption seems to be driven more by political ideology and private interests than by local environmental and employment benefits, raising questions as to when environmental federalism serves the public interest.