Boston University professor Kira Fabrizio found that firms will not invest in renewable energy technology in states with uncertain environmental policies.
All states have considered, and more than half have passed, the Renewable Portfolio Standards, which requires utility companies to buy a percentage of their energy in the form of solar, wind and other renewable energies, Fabrizio, a School of Management professor, said.
“I expected to see less investment in states with more uncertainty, but the effects I found are even more stark,” she said. “There is no significant [RPS] impact in those states.”
The study, which was released Wednesday and will be published in the next volume of “The Journal of Law, Economics & Organization,” finds states with policy uncertainty will not increase their annual level of renewable energy.
“There was no increase in the annual level of new renewable generation coming online in those states,” Fabrizio said. “In states that passed RPS that did not have the prior policy flip-flop, in contrast, there was a marked increase in annual amount of new renewable generation coming online.”
Fabrizio said it is more expensive for firms to use renewable energy than to use traditional coal or natural gas. Therefore, policies are necessary for firms to buy renewable energy and to build renewable energy facilities.
To measure policy uncertainty, or the risk of policy change, Fabrizio said she looked at the history of state-level policies for electrical utilities.
In recent decades, all states considered and about half deregulated the electrical utility industry. In 2001, when the Californian utility company Enron failed, some states that had deregulated flip-flopped and re-regulated.
“So you get this policy flip-flop history in the state, which to me says if I were thinking of investing [in renewable energy generation] in that state, this is a state where there is a risk of policy flip-flop,” Fabrizio said.
Fabrizio said she hopes the ultimate impact of her research will be to highlight the importance of committing to renewable energy policies in the long term.
“What I wanted to do with the paper was to think about how this risk of the policy changing in the future influences the incentives to build these [renewable energy] projects, and so therefore the level of investment we see as a response to the policy,” she said.
David Weil, an SMG professor who analyses public policies, said the study could have a significant impact. Promoting renewable energy is a new policy area, where policymakers do not have much experience of solid research upon which to base their decisions, he said.
“Really good, scholarly research, that also speaks to real problems, can be incredibly influential in any early point in an area of public policy-making, and this study is certainly an example of that,” Weil said.
James Baldwin, a lecturer in the earth and environment department of the College of Arts and Sciences, said Fabrizio’s work shows the importance of a new sustainability minor at BU, which combines CAS, SMG and College of Engineering courses.
“[This research] is further evidence of the value of that new minor and of that interdisciplinary vision of dealing with these problems,” Baldwin said.
Baldwin said states drive climate action plans and push toward renewable standards with a patchwork array of policy in the U.S. that brings about regulatory uncertainty.
“It’s [the study is] just one more piece of evidence that there really needs to be some sort of national level and substantive policy to promote renewable energy,” Baldwin said.
Alysse Margolis, an SMG sophomore, said some states push less, and others push more on renewable energy and the environment.
“I don’t think as a nation we take enough concern in it [renewable energy and the environment], but I think if you look at certain states individually, it’s definitely more enhanced,” Margolis said.
There will be a focus on energy at the national level in the future, said Bryan Patenaude, a first-year Graduate School of Arts and Sciences student.
“We can’t keep using fossil fuels and everything,” Patenaude said. “There is a real potential for the United States to become a leader in alternative energy.”
Vicenc Rubies Royo, a ENG junior, said the efficiency of a solar cell is much smaller than that from gas.
“At some point, if they do improve it, that’s the only thing [solar power] we are going to use most likely,” Rubies Royo said. “Until that day, I think it’s sort of a dead-end.”