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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 U.S. electricity generation. However, U.S. states that regulate electric utilities have retired coal more slowly than others. We build a structural model of rate-of-return regulation during an energy transition where utilities face tradeoffs between lowering costs and maintaining coal capacity. We find that the current regulatory structure retires only 45% as much coal capacity as a cost minimizer. A regulated utility facing a carbon tax does not lower carbon emissions immediately but retires coal similarly to the social planner. Alternative regulations with faster transitions clash with affordability and reliability goals.

Suggested Citation

  • Gautam Gowrisankaran & Ashley Langer & Mar Reguant, 2024. "Energy Transitions in Regulated Markets," NBER Working Papers 32088, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:32088
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    More about this item

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General

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