The U.S. Manufacturing Sector’s Response to Higher Electricity Prices: Evidence from State-Level Renewable Portfolio Standards

While several papers examine the effects of renewable portfolio standards (RPS) on electricity prices, they mainly rely on state-level data. Our analysis of RPS policies uses plant-level electricity prices. In addition, there has been little research on how RPS policies affect manufacturing activity via their effect on electricity prices. Using a plant-level dataset for the entire U.S. manufacturing sector and all electric utilities from 1992 – 2015, we jointly estimate the effect of RPS adoption and stringency on plant-level electricity prices and production decisions. To ensure our results are not sensitive to possible pre-existing differences across manufacturing plants in RPS and non-RPS states, we implement coarsened exact covariate matching. Results suggest that electricity prices for plants in RPS states averaged about 2% higher than in non-RPS states. This estimate is notably lower than prior estimates based on state-level data. In response to these higher electricity prices, we estimate that plant electricity usage declined by 1.2% for all plants and 1.8% for energy-intensive plants, on average, which is broadly consistent with published estimates of the elasticity of electricity demand for industrial users. We find smaller declines in output, employment, and hours worked (relative to the quantity of electricity). Finally, we find that several key RPS policy design features that vary substantially from state-to-state produce heterogeneous effects on plant-level electricity prices.