Inferring Carbon Abatement Costs in Electricity Markets: A Revealed Preference Approach using the Shale Revolution

Joseph A. Cullen and Erin Mansur

No 20795, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper examines how much carbon emissions from the electricity industry would decrease in response to a carbon price. We show how both carbon prices and cheap natural gas reduce, in a nearly identical manner, the historic cost advantage of coal-fired power plants. The shale revolution has resulted in unprecedented variation in natural gas prices that we use to estimate the short-run price elasticity of abatement. Our estimates imply that a price of $10 ($60) per ton of carbon dioxide would reduce emissions by 4% (10%). Furthermore, carbon prices are much more effective at reducing emissions when natural gas prices are low. In contrast, modest carbon prices have negligible effects when gas prices are at levels seen prior to the shale revolution.

JEL-codes: Q4 Q5 (search for similar items in EconPapers)
Date: 2014-12
New Economics Papers: this item is included in nep-ene, nep-env and nep-reg
Note: EEE
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Citations: View citations in EconPapers (13)

Published as Joseph A. Cullen & Erin T. Mansur, 2017. "Inferring Carbon Abatement Costs in Electricity Markets: A Revealed Preference Approach Using the Shale Revolution," American Economic Journal: Economic Policy, vol 9(3), pages 106-133.

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Journal Article: Inferring Carbon Abatement Costs in Electricity Markets: A Revealed Preference Approach Using the Shale Revolution (2017)
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