The question of uncertainty and risk in electric utility resource planning has received considerable attention in recent years. One approach to managing risk is for a utility company to invest in diverse power sources such as wind power plants. The authors of this report test this hypothesis by conducting an in-depth analysis of the risk implications of a decision to build a 1600 MW wind power plant instead of a 400 MW gas-fired combined cycle plant. The uncertain inputs included fuel prices, environmental regulations, wind plant output, conventional plant availability, and load growth. This paper examines two different market scenarios: traditional regulation and an unregulated wholesale market characterized either by a power pool or fixed-price contracts of varying duration.

This study finds that the US could reduce its carbon emissions to its Kyoto target and, indeed, to significantly below that target. Moreover, this can be achieved with overall net savings in the costs of energy and energy-using equipment. These policies and measures yield many other benefits, such as for human and ecosystem health, technological innovation, and job growth. They would also demonstrate clearly to the rest of the world the seriousness with which the US is acting to meet its climate protection responsibilities and, thereby, to help advance the goals of the climate convention.

This paper presents and discusses an integrated set of policies designed to reduce US carbon emissions over the next four decades. This innovation path also aims to promote environmental quality, particularly by reducing emissions of criteria air pollutants, to reduce US dependence on imported oil, and to induce technological innovation and diffusion in energy production and consumption. In addition to such environmental benefits, such a path would lead to net savings and substantial job growth.

Originally published in Ecology and Society 2, no. 2 (1998): 1-17.