The future of the electricity industry: Implications of trends and taxes

• Published in: Energy economics 2018-06, Vol.73, p.393-409
• Main Author: Ross, Martin T.
• Format: Article
• Language: English
• Subjects: Capital; Carbon; Carbon dioxide; Carbon dioxide emissions; Carbon taxes; Climate policy; Coal; Coal industry; Coal-fired power plants; Cost analysis; Economic conditions; Economic models; Electric industries; Electricity; Electricity generation; Electricity pricing; Emissions control; Energy economics; Energy industry; Environmental tax; Gas production; Industrial plants; Industrial production; Natural gas; Natural gas industry; Nuclear fuels; Nuclear power plants; Oil and gas production; Operating costs; Penetration; Power marketers; Shale; Shale gas; Shales; Taxation; Taxes; Technology; Trends
• ISSN: 0140-9883; 1873-6181
• DOI: 10.1016/j.eneco.2018.03.022

This analysis examines how changes in market trends and technology costs are likely to affect electricity generation in the United States in the context of possible future carbon taxes. The industry today is at a crossroads as older coal-fired plants retire and as nuclear plants begin to reach the end of their originally planned lives. At the same time, new and improved technologies for wind and solar generation are reshaping the industry, alongside dramatic increases in natural gas generation as the result of the shale-gas revolution. How these forces interact will depend on the specific paths that technologies for renewables and shale gas production take over the next couple of decades. The paper uses the detailed DIEM electricity-sector model to examine a wide range of sensitivity cases for technology and fuel costs under different economic conditions. Model results focus on the level of renewable penetration, natural gas generation and emissions, and what all of these factors may mean for CO2 emissions in the industry. The model finds that carbon taxes can be an effective way to quickly lower emissions. Shifts among natural gas and renewable generation can vary significantly, depending on capital and operating costs. •A carbon tax in electricity gives significant emission reductions in the near term.•Emission reductions are similar across trends in gas prices and renewables costs.•Wholesale cost increases are quite low for the nation, on the order of 1% to 4%.•High natural gas prices have the greatest potential to raise policy costs.