When it comes to offsetting pollution, wind power outperforms solar

Clean energy policy has long focused on incentivizing alternative energy production — with incentive structures applied at the state level — rather than directly addressing the problem of emissions from coal and other fossil fuel power plants. This creates a significant potential for mismatch between policy intention and outcomes, a measure of policy inefficiency. In this case, incentivizing renewable energy production greatly diverges from the minimum cost method of offsetting pollutants (CO2, NOx, and SO2) produced by coal, combined cycle gas, and gas turbine producers.
 
In a recent paper published in the American Economic Journal: Economic Policy, Kevin Novan from the University of California, Davis, explores heterogeneity in pollution offsetting in the Texas energy market  — a helpful model due to its relative isolation and its large amount of installed renewable energy production. Previous studies suggest marginal emissions rates differ between markets as do the external costs of pollutants. Novan takes this further, exploring how even within markets "output from different renewable technologies provides different marginal external benefits." To do so, he uses hourly demand, energy production, and emissions data from January 2007- December 2011 across the Texas and surrounding energy markets.
 
In estimating the marginal effects on pollution offsetting from changes in renewable energy production, Novan thoroughly controls for hour-of-day fixed effects (10,080 total) and day fixed effects (1,826) when using a dataset of 43,795 observations on each of different energy generation types, emissions data, and demand. This allows him to assess the effect of changes in wind, and later approximately solar generation, on decreases in pollution from coal, dual cycle, and natural gas electricity generation which is offset.
 
An interesting problem arises in introducing two such very different clean energy systems into an existing market.  Already in the market, there exists low-cost, high-emissions coal production,—the backbone of most energy markets — and higher-cost gas turbine and combined-cycle energy production methods. With increases in demand, more higher-cost producers (gas and combined cycle) come on line as price and potential revenue exceeds their costs.  So during low demand hours, emissions are higher per unit of output as more production comes from dirtier methods of energy production. Interestingly, wind power generation is also highest during these periods of low demand- at night. In comparison, solar power production peaks during high-energy demand periods (during the day) and thus instead offsets relatively cleaner and higher-cost gas and combined cycle production.
 
The result is that the marginal external benefit in pollution reduction of an additional unit of wind power is greater than that of solar for much of the range of solar and wind generation installed to date. Only when solar installations reach a point where their production begins to offset lower cost coal production (which they have not) will solar generation begin to offset as much CO2, NOx, and SO2 as wind generation. Novan emphasizes these differences exist even between the first and ith unit of wind and solar units installed, with increasing pollution reductions with additional units of wind production to date and comparatively constant returns to solar installation.
 
A key takeaway is that the cost of pursuing current, inefficient renewable energy subsidy programs is even greater than previously accepted. Subsidizing any renewable system without considering the cost of the marginally offset pollutants leads to inefficiency. This inefficiency means that society is paying much more than is necessary for each unit reduction in CO2, NOx, and SO2. As has been advocated for by some economists, policymakers, and environmentalists over the last several decades, pollution abatement is best handled by directly addressing the flow of pollutants themselves.