Do state renewable portfolio standards promote in-state renewable generation?

Several US states have passed renewable portfolio standard (RPS) policies in order to encourage investment in renewable energy technologies. Existing research on their effectiveness has either employed a cross-sectional approach or has ignored heterogeneity among RPS policies. In this paper, we introduce a new measure for the stringency of an RPS that explicitly accounts for some RPS design features that may have a significant impact on the strength of an RPS. We also investigate the impacts of renewable portfolio standards on in-state renewable electricity development using panel data and our new measure of RPS stringency, and compare the results with those when alternative measures are used. Using our new measure, the results suggest that RPS policies have had a significant and positive effect on in-state renewable energy development, a finding which is masked when design differences among RPS policies are ignored. We also find that another important design feature - allowing free trade of REC's - can significantly weaken the impact of an RPS. These results should prove instructive to policy makers, whether considering the development of a federal-level RPS or the development or redesign of a state-level RPS. (C) 2009 Elsevier Ltd. All rights reserved.