An assessment of the efficacy and cost of alternative carbon mitigation policies for the state of Indiana

Liwei Lu, Purdue University


A nation-wide climate policy targeting the power sector might lead to dramatic changes to Indiana's electricity generation system. This is because Indiana relies heavily on coal as its primary source for electricity generation and coal is much more carbon-intensive than other fossil fuels. In the possible event that Indiana will have to take action on carbon mitigation, for example because of a national climate policy in the future, it is important for state policymakers to understand the costs and efficacy of alternative strategies. In addition, assessing the impacts of the policy alternatives on Indiana serves as guidance for the national policy design process regarding the subnational impacts. A linear-programming optimization model was created based on the MARKAL energy system model framework to analyze the impact of a potential national climate policy on the state of Indiana. This model is named IN-MARKAL and is built based on comprehensive research into Indiana's energy-economic system, including primary resource supply, energy conversion sectors and end-use sectors. Alternative scenarios explored in this study include a base case scenario and six renewable portfolio standard (RPS) scenarios, including two without trading in renewable energy credits (RECs) and four with REC trading at various costs. In addition, three carbon tax scenarios and two rate-based carbon cap scenarios are studied. The results of the model show that an RPS is a very cost effective option among the policy tools examined. An RPS can achieve substantial emissions reductions for the power sector of Indiana, but it may also lead to a less reliable generation mix. A carbon tax appears to be the least cost effective tool to reduce carbon emissions for Indiana based on the tax trajectories modeled. The emission cap is effective for realizing deep carbon reductions with moderate cost and leads to a diverse generation portfolio for Indiana, but the intermediate goal for Indiana specified in the current EPA proposal may not be achievable, resulting in a large increase in the marginal cost of electricity during the policy phase in, rather than the smooth electricity cost trajectory observed in some other scenarios.




Preckel, Purdue University.

Subject Area

Climate Change|Economics|Energy

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