Coal-Fired Power Plant Retirements in the U.S

Effects of Fuel Costs on New Electricity Generators in the United States

“…Each firm makes a two-part, discretecontinuous decision regarding the energy source for and the size of new generators by optimizing their discounted present value, conditional on these two decisions. Previous literature refers to this set up as a real options model (Davis, Holladay, and Sims 2021). We start by describing the objective functions, which depend on the regulatory status of the firm as either an independent power producer (IPP) or a utility.…”

“…Linn and Muehlenbachs (2018) use nationwide plant-level data on fuel consumption and generation, finding that the decrease in natural gas prices during 2008 to 2012 induced coal retirements, but only in the Southeast and Northeast. Davis, Holladay, and Sims (2021) model a firm's decision to retire coal generation. Using variation in coal costs and electricity prices, the authors create policy scenarios: a tax of $51 per ton CO !…”

“…The results fromLinn and Muehlenbachs (2018) suggest that a ten percent increase in gas cost, about $5 per ton of carbon, results in a 0.93 percent reduction in CO ! emissions rate nationally in 2008 Davis, Holladay, and Sims (2021),. in results-based policy simulations, find that a $51 per ton carbon tax leads to a four percent reduction in carbon emissions over ten years nationally Linn and McCormack (2019).…”