Sharply higher prices for oil over the past several years, concerns about energy security, and growing worries about global warming have greatly increased interest in expanding renewable energy in the United States. Substituting renewable energy for fossil fuels would reduce emissions of carbon dioxide (CO2), the most prevalent “greenhouse gas” (GHG) associated with global warming. By lowering demand for oil, substitution of renewable fuels could contribute to national energy security. In addition, increased renewable-energy supplies from rural areas could enhance rural incomes in the United States.
The penetration of renewable energy into the marketplace has been small, providing 9.5 percent of total U.S. electricity use (mostly hydroelectric power) and only around 1.6 percent in motor fuels in 2006. The market penetration of renewables has been held back principally by their higher cost relative to fossil energy. But cost relationships could change in the future.
In this report, RAND researchers assess the potential impact on U.S. consumer energy expenditures of producing 25 percent of U.S. electric power and motor vehicle–transportation fuels from renewable resources by the year 2025 and to examine the potential effects of this mix of energy use on national CO2 emissions. The baseline for the comparisons was expenditures and CO2 emissions in 2025 as drawn from the reference-case tables of the Energy Information Administration’s (EIA’s) 2006 Annual Energy Outlook (AEO) (EIA, 2006a, 2006b). However, the researchers also consider the implications of future energy prices much higher than these reference-case values.
The researchers focused on the impacts of expanded renewables use in the motor-fuel and electricity sectors, while taking into account the impacts that such changes in energy use would have in other domestic and international energy markets. The analysis did not address broader measures of economic impacts from the introduction of more-costly energy sources or the economic impacts of potential competition between food and fuel in the production of biomass-based energy production. Assessing impacts on consumer expenditures and CO2 emissions requires many assumptions about future energy costs and demands, factors that remain highly uncertain. These factors include not just the rate of advance in renewable-energy technologies but also the costs of fossil energy (in particular, the future price of oil) and the availability of renewable resources (in particular, biomass).
To facilitate addressing these uncertainties, basic supply-and-demand–type models were used to describe possible snapshots of 2025 energy markets in terms of prices, quantities used, expenditures, and CO2 emissions. In the analysis of model results, the goal was not to identify any single “most likely” scenario for future energy costs or patterns of energy use. Instead, we