How Do Natural Gas Prices Affect Electricity Consumers and the Environment?

Resources for the Future Discussion Paper No. 14-19

43 Pages Posted: 15 Dec 2014

See all articles by Joshua Linn

Joshua Linn

Resources for the Future

Lucija Muehlenbachs

Resources for the Future; University of Calgary

Yushuang Wang

Resources for the Future

Date Written: July 18, 2014

Abstract

Between 2008 and 2012, the delivered price of natural gas to the U.S. power sector fell 60 percent. This paper addresses, in theory and in practice, the effects of this negative price shock on electricity consumers and the environment. We demonstrate with a simple model that the larger the effects of gas prices on consumer welfare, the smaller the effects on pollution emissions and the smaller the increase in profits of existing natural gas-fired generators. Using detailed data on electricity prices, fuel consumption, and fuel prices from 2001 to 2012, we confirm this hypothesis. Regions that experience greater reductions in pollution emissions experience smaller reductions in electricity prices and consumer welfare.

Keywords: Electricity Demand, Natural Gas, Coal, Shale Gas, Pollution

JEL Classification: Q41, Q53

Suggested Citation

Linn, Joshua and Muehlenbachs, Lucija and Wang, Yushuang, How Do Natural Gas Prices Affect Electricity Consumers and the Environment? (July 18, 2014). Resources for the Future Discussion Paper No. 14-19, Available at SSRN: https://ssrn.com/abstract=2537833 or http://dx.doi.org/10.2139/ssrn.2537833

Joshua Linn

Resources for the Future ( email )

1616 P Street, NW
Washington, DC 20036
United States

Lucija Muehlenbachs (Contact Author)

Resources for the Future ( email )

Washington, DC 20036
United States

University of Calgary ( email )

University Drive
Calgary, Alberta T2N 1N4
Canada

Yushuang Wang

Resources for the Future

1616 P Street, NW
Washington, DC 20036
United States

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