Preferences, strategies, and policies for net-zero electricity

Project Sponsor

This three-year project is supported by the National Science Foundation, Economics Program.

Overview

Several jurisdictions have improved legislative frameworks and designed new incentives to encourage multiple net-zero emission strategies to reduce the environmental impact of electricity generation. However, investments in cleaner production and carbon dioxide (CO2) abatement remain substantially low. For example, 60% of electricity is still produced from burning fossil fuels and only a handful of power generators have invested in carbon capture, utilization, and storage (CCUS). When it comes to reducing electricity-attributed emissions, it is not well understood what type of policies are best suited to align private and social incentives, and to what degree market versus non-market forces would impact firms’ strategic decision-making and the design of welfare-enhancing policies. Moreover, electricity consumers have preferences and perceptions of risks/benefits that could affect markets and influence decision-making. We envision a novel approach that allows energy decision-makers (e.g., consumers, and generators) to differentiate electricity products by the extent and means of achieving net zero emissions.

Research objectives are: (1) examine support for alternative policies aimed at reducing or removing electricity-attributed CO2 using a national survey, (2) estimate the willingness to pay for a net-zero electricity product achieved via CCUS and/or renewable production systems using choice experiments, (3) characterize welfare-enhancing policies and examine implications for a net-zero goal, and (4) examine the impact of market, technical, and policy parameters on firms’ strategic production and abatement decisions.

Intellectual Merits

Despite technical research showing carbon capture as the most promising approach to achieving a net-zero goal, no studies document consumer preference and willingness to pay for an electricity product that embodies net-zero emissions through CCUS versus cleaner production. This study develops a unique approach where electricity with a net-zero attribute can be differentiated from a traditional electricity product. Under this framework, we examine individual preferences for net-zero electricity as the differentiated product; determine welfare-enhancing policies; and the strategic response of power generators with respect to investing in cleaner production and/or CCUS. Furthermore, despite advances in the techno-economic analysis of carbon capture technologies, there are no studies that use profit and welfare-maximization models to understand decision-making when it comes to the strategic choice of adopting CCUS technologies and the design of optimal policies. The research provides a solid theoretical foundation and an evidence-based solution that can be used by electric generators to differentiate their net-zero or low-carbon electricity products. This could create additional market-based incentives for power generators to increase investments in CCUS retrofits which currently is extremely low.

Broader Impacts

Carbon capture has the potential to enable a sustainable electricity system, in particular when cleaner production is not technically feasible. Carbon capture directly benefits society at large in terms of improved environmental quality, and this research will develop mechanisms to transparently communicate the value of decarbonization to electricity stakeholders. With the right understanding of the public’s preference for net-zero electricity, power generators can design appropriate marketing tools to differentiate their net-zero electricity from other electricity products. Second, power generators will benefit from insights gained from understanding the impact of changing uncertain parameters on the economics of investing in alternative or combinations of net-zero technologies. Finally, research outputs will inform decision-making, in particular, creating new markets and employment for carbon abatement as well as inform policymaking in decarbonization and energy transition.

Project Team
  • Dr. Mahelet Fikru, Associate Professor, Economics
  • Bruktawit Ahmed, Graduate Research Assistant, Psychological Sciences
  • Nhien Nguyen, Undergraduate Researcher, Chemical Engineering
  • Paige Ellefsen, Undergraduate Researcher, Environmental Science

Project Outputs