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Pathways Toward Grid Decarbonization

Impacts and Opportunities for Energy Customers from Several U.S. Decarbonization Approaches

INTRODUCTION

The power sector has a leading role to play in cost-effective, economy-wide emission reductions because it can reduce emissions at lower costs than any other major sector, and it can enable other sectors like transportation and buildings to substantially decarbonize through electrification. Within that, commercial and industrial customers are responsible for nearly 50% of electricity-related emissions and so too, have a powerful role to play in accelerating electricity sector decarbonization.

The Clean Energy Buyers Institute (CEBI) partnered with Resources for the Future (RFF) to analyze pathways that would optimize power sector decarbonization and the impacts of those pathways on customers’ access to clean energy in the Pathways Toward Grid Decarbonization: Impacts and Opportunities for Energy Customers from Several U.S. Decarbonization Approaches report.

The report projects the costs and benefits of five pathways below using detailed simulation modeling. In the context of the recently passed Inflation Reduction Act (IRA), which include strong incentives for clean electricity, the main finding is that complementary cost-reducing pathways, particularly organized wholesale markets and inter-regional transmission expansion, can reduce customer costs and increase decarbonization, customer clean energy access, and net benefits.


THE FINDINGS: Policy-by-policy summary

Based on detailed modeling of the policies, compared to outcomes in the same years in a reference scenario with none of the policies, the report’s findings indicate:

A national high-capacity transmission macrogrid would result in benefits that are 3-4 times the estimated costs. It would reduce national average retail electric rates by approximately 1% while reducing annual U.S. power-sector GHG emissions an estimated 2.6% by 2050. Clean energy incentives similar to the IRA would increase the cost and rate reduction effects of the macrogrid.

Expansion of competition among electricity generators via organized wholesale electricity market (OWM) expansion to the parts of the U.S. that do not currently have OWMs would save $11 billion annually by 2035 and $14 billion annually by 2050. In addition, it would reduce national power sector emissions 8% by facilitating the integration of clean generation sources. The regions without OWMs are the Southeast and much of the West.

Expansion of electricity supply choice to commercial and industrial customers in the parts of the country that do not have it would reduce power-sector GHG emissions in both 2035 and 2050 a further 2% beyond the reduction achieved by expanding OWMs.

Utility-led 100% decarbonization of vertically integrated investor-owned utilities, which supply 42% of U.S. electricity, would reduce U.S. power-sector greenhouse gas (GHG) emissions 38% by 2050, with a benefit-to-cost ratio of 7 to 1.

A national “Fast” Clean Electricity Standard (CES) with a non-emitting generation target that reaches 100% by 2035 and a “Slow” CES with a target that reaches 100% by 2050. Either would produce the largest estimated annual net benefits of any of the policies, approximately $80 billion by 2035 and $110 billion by 2050. A Slow CES would increase projected 2035 clean generation from 42% in the reference scenario to 78%. Without any tax credits, this would increase the projected national average retail electricity rate by just 3%. With the credits in the IRA, the expected rate impact of achieving 78% non-emitting generation is likely to be even lower, and potentially a rate reduction. 

The emissions projected reductions and net benefits in 2050 of each policy are listed below. All results above and below are relative to the results in the same year in a baseline scenario without any of the policies.

PolicyElectricity sector GHG emissions
reductions in 2050 (%)
Annual net benefits
in 2050 (Billion 2020$/yr)
‘Fast’ CES94%$108
‘Slow’ CES93%$111
Utility-led decarbonization38%$53
OWM & Supply Choice Expansion10%$25
OWM Expansion8%$24
Transmission Macrogrid2.6%$10

Effects on customer access to clean generation

For customers’ clean energy access, the report finds that increasing voluntary clean power purchasing options through OWM expansion and supply choice expansion can produce billions of dollars per year in net benefits. They are unlikely to result in deep decarbonization nationally or regionally but can improve the cost-effectiveness of policies such as the IRA, utility-led decarbonization, and CESs that cause clean generation for all customers while allowing customers to drive decarbonization faster.

Employment effects 

The National Renewable Energy Laboratory estimated the employment effects of the CESs and Utility-led Decarbonization. Based on those estimates, these policies would increase projected employment through 2035. A Slow CES would produce an estimated average of 210,000 more energy sector jobs at any given moment through 2035, a Fast CES an average of 290,000 more, and Utility-led Decarbonization an average of about 50,000 more. These are net increases compared to the reference scenario. After 2035, the projected employment effects are mixed. 

Unlocking customer demand

Energy customers have faced many challenges in accessing clean energy, particularly shortages of transmission capacity to connect projects and move power, and the absence in some regions of well-functioning, organized wholesale markets that reduce generation production costs for all customers, provide a level playing field to integrate clean energy projects, and serve as a platform through which customers can more efficiently buy and sell clean energy.


Methodology

This report examines the effects of several decarbonization pathways for reducing CO2 emissions in the electric power sector in the U.S. The pathways involve national clean electricity standards, electric utility-led decarbonization commitments, expansion of organized wholesale electricity markets, expansion of supply choice to more electricity customers, and construction of new long-distance transmission lines. An advanced power sector model is used to project the effects, benefits, and costs of each, as of 2035 and 2050. The exception is that for the CES that targets 80% clean electricity by 2030, we project the effects in 2025 and 2030.