Challenges of a Clean Energy Transition and Implications for Energy Infrastructure Policy

July 14 2021 • Ryan Kellogg, Severin Borenstein

The United States faces the challenge of dramatically reducing carbon emissions while simultaneously ensuring the reliable supply of on-demand energy services that its residents have come to expect. Federal policy will be instrumental in driving investments in energy infrastructure that will be required to transition the U.S. energy supply to zero-emissions sources. This paper discusses the major barriers that policy will need to overcome in order to successfully execute this transition at a reasonable cost. A core problem is that wind and solar generation are intermittent. Provision of reliable zero-emission supply therefore requires combining wind and solar resources with investments in dispatchable zero-emission sources (such as nuclear, hydroelectric, geothermal, and fossil-fueled power plants with carbon capture and sequestration), long-distance transmission, demand flexibility, and storage technologies. But given uncertainties about technological progress, it is difficult to know which combination of investments will be most cost-effective. We argue that broad incentives – such as carbon pricing, clean energy standards, or clean energy subsidies – that do not discriminate across zero-emissions resources will be essential for directing capital toward cost-effective investments in clean energy infrastructure. We also argue, however, that such incentives on their own will be insufficient to meet the overall challenge. Policy must also address a suite of additional problems in energy markets that clean energy pricing incentives alone will not address. These problems include motivating global emissions reductions, overcoming regulatory barriers to long-distance transmission construction, addressing deficiencies in wholesale energy markets, reducing utilities’ inclusion of non-marginal costs in volumetric retail rates, eliminating inequities in the distribution of clean energy’s benefits and costs, and funding infrastructure decommissioning at the end of its useful life.