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Energy Transitions in Regulated Markets

Author

Listed:
  • Gautam Gowrisankaran
  • Ashley Langer
  • Mar Reguant

Abstract

Natural gas has replaced coal as the dominant fuel for US electricity generation. However, utilities in regulated US 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 trade-offs between lowering costs and maintaining and using legacy capacity. A regulated utility facing carbon taxes lowers short-run coal generation 48 percent as much as a cost minimizer would. Thirty years after a sudden energy transition, a cost minimizer has retired 71 percent more coal capacity than the regulated utility. Alternative regulations may jeopardize affordability and reliability goals during energy transitions.

Suggested Citation

  • Gautam Gowrisankaran & Ashley Langer & Mar Reguant, 2026. "Energy Transitions in Regulated Markets," American Economic Review, American Economic Association, vol. 116(8), pages 2928-2961, August.
    • Handle: RePEc:aea:aecrev:v:116:y:2026:i:8:p:2928-61
    DOI: 10.1257/aer.20240094
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    More about this item

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy
    • Q35 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Hydrocarbon Resources
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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