In defense of his position, Prof. Michaels leaned heavily on the work of David Montgomery of CRA International. Montgomery presented a paper in May at the Harvard Electricity Policy Group — a very interesting repository of leading-edge thinking on the electricity sector — entitled
The Montgomery/Michaels position is that RPS requirements do not effectively address the core issue they aim to tackle (air emissions), and instead only produce significant economic distortions and hence inefficencies in the operation of power markets.
As an economist by background and a free-markets capitalist by philosophy, I am generally sympathetic to their arguments against RPS. In an optimal world, I too would prefer not to have RPS requirements. However, the Montgomery paper notes only in passing the real issue: that there is no policy in the U.S. to deal with the externality of CO2 emissions. If there were a binding U.S. policy on CO2 emissions — cap and trade, carbon tax, whatever — then I totally agree with the Montgomery/Michaels thesis that RPS programs are undesirably distortive. But, unless/until there is U.S. CO2 policy (which we badly need), then I believe RPS to be a fairly good second-best solution.
What do you think? Are there better ways to reduce CO2 emissions from the power sector than RPS requirements?