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

Author

Listed:
  • Linn, Joshua

    (Resources for the Future)

  • Anna Muehlenbachs, Lucija

    (Resources for the Future)

  • Wang, Yshuang

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.

Suggested Citation

  • Linn, Joshua & Anna Muehlenbachs, Lucija & Wang, Yshuang, 2014. "How Do Natural Gas Prices Affect Electricity Consumers and the Environment?," RFF Working Paper Series dp-14-19, Resources for the Future.
    • Handle: RePEc:rff:dpaper:dp-14-19
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    File URL: http://www.rff.org/RFF/documents/RFF-DP-14-19.pdf
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    More about this item

    Keywords

    Electricity Demand; Natural Gas; Coal; Shale Gas; Pollution;
    All these keywords.

    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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