Regional economic impacts of the Los Angeles 100% renewable energy transition

ABSTRACT

To help mitigate greenhouse gas (GHGs) generation from burning fossil fuels, many state and local governments are requiring utilities to dramatically increase the share of electricity generated from renewable sources. The City of Los Angeles has set a target of 100% renewable energy by 2045 and has formulated a plan that considers nine potential alternative scenarios that differ by technology, location, and timing. Each scenario has a unique set of local investments, operating and maintenance (O&M) costs, and concomitant rate structures. In this study we develop and apply a computable general equilibrium (CGE) model built specifically for LA to estimate and compare the economic impacts for each of the scenarios over time relative to a reference case. We find differences in economic impacts across scenarios, depending on the level and timing of investment and O&M expenditures, as well as differences in the relative rate changes across scenarios. Results show that employment and economic output are positively correlated with greater capital and O&M spending, while higher electricity rates can dampen economic activity. Several scenarios generate positive economic impacts relative to the reference case, showing that the transition need not have harmful economic impacts, and all scenarios generate a number of other positive co-benefits, such as reduced damage to health from the reduction of ordinary air pollutants. The net employment impacts from 2026 to 2045 across the scenarios range from a low of 3,600 job-year losses annually to 4,700 job-year gains, both around only 0.1% of the baseline average annual employment in the city over that period. The analysis also indicates that lower-income households are relatively more affected than others by the scenarios. Overall, even in the most negatively impactful case, the economic output and employment effects are quite small when taken in the context of the overall size of the regional economy and the large reduction in GHGs.

Key policy insights:

• The City of Los Angeles can confidently move forward with its transition to 100% renewable electricity without concern of significant negative aggregate economic impacts.

• Job impacts across all scenarios can be enhanced by attracting renewable equipment manufacturing and support industries to the City.

• Even the minimal adverse distributional impacts can be reduced by policies such as subsidies for home energy efficiency improvement, modifications to electricity rate structures or rebates.

• Both aggregate and distributional impacts can be further addressed by providing training for skilled and semi-skilled labour creating employment opportunities for City residents.

KEYWORDS:

• Renewable energy
• energy transition policy
• economic impact modeling
• income distribution impacts

Acknowledgments

The authors appreciate the valuable input by Jaquelin Cochran and Dan Steinberg at NREL for providing the input data for the economic impact modelling and for their general guidance on the LA100 project that the paper is developed from. We also appreciate the research assistance of Konstantinos Papaefthymiou. The authors also benefited from the helpful suggestions of three anonymous reviewers and the journal editor. Of course, any remaining errors and omissions are solely those of the authors. Moreover, the views expressed in this paper represent those of the authors and not necessarily those of any of the institutions with which they are affiliated nor the agencies that funded the research.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 The Inflation Reduction Act (IRA) of 2022 represents a major departure from the relatively slow pace of national climate policy and represents the single largest investment climate and energy in American history. It provides important incentives to encourage adoption of clean energy technologies that will certainly influence the demand for electricity. EV incentives should increase demand, while energy efficiency incentives will reduce demand. Unfortunately, we cannot incorporate these changes to demand because the IRA went into effect after this study was completed.

2 The impacts in Michigan for the climate action plan were a 2.7% increase in total employment in the state, but the impacts of the RPS alone were an increase of only 0.068%.

3 In addition to policies whose primary goal is to promote renewable energy, other recent policy designs with other primary objectives have promoted the adoption of renewables. One major example is that of Community Choice Aggregation (CCA), where local governments contract for electricity from a variety of sources on behalf of their residents from various suppliers and still utilize the distribution network of their original utility conveyor (DeShazo, 2017). The ‘aggregation’ enables CCA to negotiate lower electricity rates but also has been shown to attain a higher proportion of renewable electricity in the process (O'Shaughnessy et al., 2019). In addition, some CCAs make increasing local employment an objective, but there is some skepticism about the extent to which this takes place on net (Kennedy & Rosen, 2020).

4 McManamay et al. (2019) developed a methodology to analyze alternative spatially explicit infrastructure transition scenarios to achieve sustainable utilization of land, energy, and water resources for cities. In contrast to our study, these authors focused on the environmental footprint, rather than changes in system costs and economic impacts of the transitions.

5 As examples, see He et al. (2010), Li et al. (2014), Yin et al. (2019), Matsumoto and Fujimori (2019), and Jeon et al. (2022).

6 We have constructed a data-intensive baseline social accounting matrix (SAM) that contains the flow of expenditures between households, firms, local government, and rest of the world, described in Appendix Figure 1A. The CGE model calibration is considered accurate when it can exactly reproduce the data in the SAM. The SAM database for the City of Los Angeles was obtained from IMPLAN (2021).

7 Price changes in other areas could be a fourth factor. For example, a price increase in Los Angeles will have less of an impact on the region’s competitive position if electricity prices increase at a similar rate in other reasons, perhaps due to pursuing similar renewable electricity goals. However, our results assume that LA price changes are relative to unchanged prices in the ‘rest of the world.’ This is a reasonable assumption in the short term, because LA plans to be far ahead of other areas in implementation of clean electricity.

8 Our analysis does not look at impacts on all sectors, however, such as the impacts of reduced gasoline consumption due to increased EV penetration, which can impact refineries, fuel distribution and retail gasoline and diesel.

9 A Hydrogen-Combustion turbine produces fuel from renewable electricity and stores it on site; RE-Combustion generation involves purchasing a generic, renewable fuel from the market, assumed biofuel in the near term and hydrogen starting in 2045.

10 While the rate estimates incorporate information about capacity, projected demand and expected investment and O&M costs, the analysis makes several simplifying assumptions about costs of financing, existing debt, and implications of demand-side management, among others.

11 We did not compute a discounted present value for real household income since it would not change the qualitative results.

12 Due to space limitations, we have not included our analysis on the distributional impacts on household income.

Additional information

Funding

This research was supported by Los Angeles Department of Water and Power and National Renewable Energy Laboratory (NREL). The analysis, discussion and conclusions are those of the authors and do not necessarily represent the views of either the City of Los Angeles or NREL.