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The heterogeneous impacts of low natural gas prices on consumers and the environment

Joshua Linn and Lucija Muehlenbachs

Journal of Environmental Economics and Management, 2018, vol. 89, issue C, 1-28

Abstract: We show that low natural gas prices increase gas-fired electricity generation, reduce coal-fired electricity generation, and reduce wholesale electricity prices. However, not all regions experience the same degree of coal-to-gas generation switching or electricity price declines. Specifically, regions experiencing more coal-to-gas switching experience smaller electricity price drops. We provide intuition that may explain this pattern. This finding also has environmental and welfare consequences: coal-fired plants emit more pollutants, and therefore regions that benefit more from greater emissions reductions experience lower benefits from declining electricity prices. The finding highlights a mechanism through which a carbon price would have heterogeneous impacts across regions.

Keywords: Electricity prices; Natural gas; Coal; Cost pass-through; Pollution; Shale gas (search for similar items in EconPapers)
JEL-codes: Q41 Q53 (search for similar items in EconPapers)
Date: 2018
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Journal of Environmental Economics and Management is currently edited by M.A. Cole, A. Lange, D.J. Phaneuf, D. Popp, M.J. Roberts, M.D. Smith, C. Timmins, Q. Weninger and A.J. Yates

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