Energy Transitions in Regulated Markets

Gautam Gowrisankaran, Ashley Langer and Mar Reguant

No 32088, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Natural gas has replaced coal as the dominant fuel for U.S. electricity generation. However, electric utilities in regulated states have retired coal more slowly than others. We build a structural model of rate-of-return regulation during an energy transition where utilities face tradeoffs between lowering costs and maintaining and using legacy capacity. A regulated utility facing carbon taxes lowers short-run coal generation 48% as much as a cost minimizer would. Thirty years after a sudden energy transition, a cost minimizer has retired 71% more coal capacity than the regulated utility. Alternative regulations may jeopardize affordability and reliability goals during energy transitions.

JEL-codes: L51 L94 Q48 Q50 (search for similar items in EconPapers)
Date: 2024-01
New Economics Papers: this item is included in nep-ene, nep-env and nep-reg
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