Ian Bowen MS

Date of Award

Spring 2021


MS - Economics


Fernando Rios-Avila, Ph.D.


Renewable portfolio standards (RPS) have emerged as some of the main state-level policy tools addressing climate change. The central aim of this thesis is to investigate the costs and benefits of these policies in terms of their impacts on the share of non-hydro renewables and electricity prices, respectively. To accurately estimate these impacts, this paper argues that it is necessary to account for policy heterogeneity (i.e., differences in policy features across states) and endogeneity (i.e., the correlation between policy features and unobservable factors that affect the dependent variables). In the literature, there has been work addressing the former, and there is a modest consensus that RPS is effective when heterogeneity is considered. However, there has been little work addressing endogeneity. To address this gap in the literature, this thesis uses the instrumental variable (IV) and control function (CF) approaches to account for endogeneity and measures of RPS that capture policy heterogeneity. It compares the results from these approaches with the results of baseline regressions that account for heterogeneity but not endogeneity. In the results for the non-hydro renewable share, RPS is found to have significant impacts in the baseline but not in the IV and CF regressions. However, the validity of the results in the IV regressions depends on the strength of the instrument, which varies considerably depending on whether the instrument is lagged or if year fixed effects are included. For electricity prices, the IV approach indicates that RPS has no significant impact, while the CF approach indicates there is a significant and positive impact that is higher in magnitude than in baseline and in the literature. Due to this inconsistency between the two approaches, as well as other limitations, this thesis ends by discussing whether the results are useful for public policy. It argues that the literature on RPS has not reached the point where strong conclusions can be made about the impact of these policies.

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Open Access

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Economics Commons