US states can achieve their decarbonization goals, even if they import some of the electricity they consume. Take the state of Maryland, for example.
Power-importing US states face a conundrum if they want to decarbonize their energy sources. Although state regulators have authority over electricity-system planning within their state, those regulators nonetheless cannot govern how electricity is generated in the neighboring states that actually produce the power which gets imported. Many states have made strong commitments to reducing greenhouse gas emissions and can govern their own emissions from electricity generation, but reducing emissions associated with electricity consumption has been fraught because of the interstate buying and selling of electricity.
One strategy to address these types of interstate issues has been the implementation of a multistate carbon dioxide emissions cap on electricity generation for the 10 states in the northeast and mid-Atlantic Regional Greenhouse Gas Initiative. Meanwhile, California has an independent system operator that’s responsible for grid operations and power trading throughout most of the state, which enables the California Air Resources Board to implement requirements for imported power to match mandates on within-state generation. Washington State also has an emission cap and is part of an open transmission system, but the state is a power exporter most of the year.
Our new working paper examines what a single state (Maryland, in our case, which participates in a large regional electricity market) can do to drive down emissions associated with electricity consumption within the state. Our research considers policies that are imposed on electricity retailers, the companies that sell power to customers. In our paper, we explore three approaches to achieve 100 percent clean electricity consumption in Maryland by 2040.
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One approach is to increase the stringency of Maryland’s existing renewable portfolio standard, which requires that a specified share of electricity consumption comes from renewable energy. This type of standard could be met through the use of tradable renewable energy credits, which could be earned by generating renewable energy, even if that energy serves customers in other states. Or, if the price of renewable energy credits is too high, then companies could meet the requirements through an alternative compliance payment. We find that a higher alternative compliance payment would be essential for boosting policy-driven clean energy development; merely strengthening the renewable portfolio standard would be insufficient to achieve Maryland’s goal.
A second potential framework is a clean energy standard that could motivate greater investment in clean energy. This standard is similar to a renewable portfolio standard, but credits all nonemitting technologies (not just renewables) and includes an alternative compliance payment that increases over time. A clean energy standard could be met by importing either clean energy or clean energy credits, both of which enable continued fossil fuel–generated electricity in Maryland, potentially for export to other states.
The third framework, an emissions intensity standard, would focus on the intensity of carbon dioxide emissions that result from electricity consumption. This approach would provide incentives for a broader set of compliance opportunities, including substitution away from imported coal-fired power during the transition to clean energy, thereby improving the cost-effectiveness of emissions reductions. An emissions intensity standard would yield the smallest increase in retail electricity prices, placing prices negligibly above business as usual through 2035, and modestly higher thereafter.
These three types of policies would achieve different emissions reductions at different costs (Figure 1). The scenarios illustrated here include a companion regulation that would apply the same standard to both within-state electricity generation and within-state electricity consumption. The change in emissions at the national level could be greater or less than the change within Maryland, due to electricity transmission across state borders and changes to investment in clean energy going forward. Figure 1A, which shows the scenario of expected electricity demand, indicates that an emissions intensity standard in Maryland (labeled “EIGS” because this version includes a companion regulation on generation as described above) would reduce national carbon dioxide emissions by about 30 million tons at an average cost of $48 per ton. An emissions intensity standard also would generate revenues through alternative compliance fees, equal to over 5 percent of retail electricity sales. The accumulation of these revenues would provide an opportunity to compensate consumers or make additional energy investments. Under high future electricity demand, an emissions intensity standard would reduce emissions by about 50 million tons of carbon dioxide.
Figure 1. Cost-Effectiveness Measured as Cumulative Changes in Resource Costs per Ton of Emissions Reductions in 2026–2040 (2024$)
Notes: CEGS = clean energy generation standard; EIGS = emissions intensity generation standard; CEGS+ = clean energy standard without an alternative compliance payment; EIGS+ = emissions intensity generation standard without an alternative compliance payment.
Figure 1B, which represents the absence of an alternative compliance fee, indicates that cumulative emissions reductions could be 125 million tons—and up to 150 million tons—under high future electricity demand.
Implementation of a clean energy standard, and potentially an emissions intensity standard, could be achieved with transferable credits, much like the current implementation of the renewable portfolio standard in Maryland. Alternatively or in addition, implementation of these policies could require a resource-planning process. Suppliers might demonstrate compliance through power purchase agreements and possibly through joint compliance planning. A regulatory process, involving oversight by the Maryland Public Service Commission, could aim to balance the imperatives of maintaining affordability and electricity resource adequacy with clean energy goals. The regulatory process might involve planning, procurement obligations (e.g., power purchase agreements), and ongoing compliance evaluation.
Maryland and other states may benefit from moving earlier rather than later to lock in clean electricity supply. As large private electricity consumers like data centers expand their presence, they often bring corporate-level commitments to purchase clean energy. Two recent examples in the neighboring state of Pennsylvania include Microsoft’s purchase agreement for power from the Three Mile Island nuclear plant and Amazon’s purchase of a data center site near the Susquehanna nuclear plant. These commitments, and those of other states seeking to procure nonemitting power generation, could lead to future increases in the price of clean energy, cause emissions “backsliding,” and deepen the challenge for states to achieve their clean energy goals.
The policy designs we explored all retain the regional electricity market with PJM Interconnection, a regional transmission organization, in the role of assuring resource adequacy in the broader region that includes Maryland. Meanwhile, these policy options would accelerate the transition to clean energy, in terms of electricity consumption within the state. The policies also likely would incentivize greater investment in clean energy generation in Maryland. The reliability of the electricity supply in Maryland is not necessarily tied to siting electricity generation in the state; however, siting more generation capacity within the state may provide greater local resilience and give Maryland more options in future energy planning.
