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

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  • Linn, Joshua
  • Muehlenbachs, Lucija

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.

Suggested Citation

  • Linn, Joshua & Muehlenbachs, Lucija, 2018. "The heterogeneous impacts of low natural gas prices on consumers and the environment," Journal of Environmental Economics and Management, Elsevier, vol. 89(C), pages 1-28.
  • Handle: RePEc:eee:jeeman:v:89:y:2018:i:c:p:1-28
    DOI: 10.1016/j.jeem.2018.02.002
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    More about this item

    Keywords

    Electricity prices; Natural gas; Coal; Cost pass-through; Pollution; Shale gas;

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

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