Cost-Effective Reduction of Greenhouse Gas Emissions via Cross-Sector Purchases of Renewable Energy Certificates 2017-01-0246

Over half of the greenhouse gas (GHG) emissions in the United States come from the transportation and electricity generation sectors. To analyze the potential impact of cross-sector cooperation in reducing these emissions, we formulate a bi-level optimization model where the transportation sector can purchase renewable energy certificates (REC) from the electricity generation sector. These RECs are used to offset emissions from transportation in lieu of deploying high-cost fuel efficient technologies. The electricity generation sector creates RECs by producing additional energy from renewable sources. This additional renewable capacity is financed by the transportation sector and it does not impose additional cost on the electricity generation sector. Our results show that such a REC purchasing regime significantly reduces the cost to society of reducing GHG emissions. Additionally, our results indicate that a REC purchasing policy can create electricity beyond actual demand. This extra capacity can be used to make clean fuel for vehicles and thereby further cut emissions from fossil fuel powered vehicles.