Environmental consequences of natural gas wellhead pricing deregulation

From 1958–1985, the U.S. Federal Power Commission, and then Congress, directly, exercised explicit control of the price of natural gas contracted for sale across state lines. This paper investigates the role of incremental deregulation of natural gas wellhead prices–a regulatory price ceiling–on U.S. air quality from 1972–1985, by influencing the incentive to move relatively cleaner natural gas across state lines. The results indicate that relaxing (raising) natural gas wellhead price caps is not associated with significant declines in national average sulfur dioxide (SO2). However, disaggregating by state’s natural gas importing status reveals that relaxing wellhead price caps was associated with significant increases in SO2 concentrations among natural gas exporting states but significant relative reductions among natural gas importing states, and that the reductions in SO2 concentrations were significantly larger for larger volume importers. Extended analysis indicates a strong relationship between relaxing wellhead price caps and relative increases in natural gas usage by importing states, and that increases of natural gas in state’s energy portfolios were associated with significant reductions in SO2 concentrations, associated in turn with annual reductions in mortality valued between $0.8 and $2.1 billion.