Locational Carbon Footprint and Renewable Portfolio Policies: A Theory and its Implications for the Eastern Interconnection of the US

The first part of the paper elaborates on the economic properties of the concept of locational marginal carbon intensity first presented in and formulates a method of decomposing the carbon footprint of the electrical grid between individual generating units, transmission facilities and end users on a real time basis. In the second part of the paper the theory of the marginal carbon footprint is further applied to the derivation of the optimal investment policy underlying Renewable Portfolio Standards (RPS). The argument is made that the existing RPS policies are at best sub-optimal in their goal to reduce emissions of Carbon Dioxide and other greenhouse gases. A proposed optimal investment rule could serve to improve the efficiency of RPS policies. The developed theory is applied to the analysis of the carbon footprint of Eastern Interconnection, theory implications are assessed for selected wind sites.