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

This paper examines how carbon pricing would reduce emissions in the electricity sector. Both carbon prices and cheap natural gas reduce the historic cost advantage of coal plants. The shale revolution resulted in unprecedented variation in natural gas prices that we use to estimate the potential ne...

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Bibliographic Details
Published in:American economic journal. Economic policy 2017-08, Vol.9 (3), p.106-133
Main Authors: Cullen, Joseph A., Mansur, Erin T.
Format: Article
Language:English
Subjects:
Carbon
Carbon dioxide
Coal
Electric utilities
Electricity
Emissions control
Gasoline prices
Markets
Natural gas
Natural gas prices
Prices
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Summary:This paper examines how carbon pricing would reduce emissions in the electricity sector. Both carbon prices and cheap natural gas reduce the historic cost advantage of coal plants. The shale revolution resulted in unprecedented variation in natural gas prices that we use to estimate the potential near-term effects of carbon prices. Estimates imply that a price of $20 ($70) per ton of CO would reduce emissions by 5 (10) percent. Carbon prices are most effective at reducing emissions when natural gas prices are low, but have negligible effects when gas prices are at levels seen prior to the shale revolution.
ISSN:1945-7731
1945-774X
DOI:10.1257/pol.20150388