How Do Natural Gas Prices Affect Electricity Consumers and the Environment?

Joshua Linn, Lucija Muehlenbachs and Yshuang Wang

RFF Working Paper Series from Resources for the Future

Abstract: Between 2008 and 2012, the delivered price of natural gas to the U.S. power sector fell 60 percent. This paper addresses, in theory and in practice, the effects of this negative price shock on electricity consumers and the environment. We demonstrate with a simple model that the larger the effects of gas prices on consumer welfare, the smaller the effects on pollution emissions and the smaller the increase in profits of existing natural gas–fired generators. Using detailed data on electricity prices, fuel consumption, and fuel prices from 2001 to 2012, we confirm this hypothesis. Regions that experience greater reductions in pollution emissions experience smaller reductions in electricity prices and consumer welfare.

Keywords: Electricity Demand; Natural Gas; Coal; Shale Gas; Pollution (search for similar items in EconPapers)
JEL-codes: Q41 Q53 (search for similar items in EconPapers)
Date: 2014-07-18
New Economics Papers: this item is included in nep-ene, nep-env and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (30)

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