Environmental implications of market structure: Shale gas and electricity markets

Abstract

We examine the environmental implications of market structure using the exogenous variation in the price of natural gas paid by U.S. electric power producers in the aftermath of the shale boom. We find that electric power producers were more responsive to fuel prices in vertically integrated markets than in restructured markets, and we explore the underlying factors driving this heterogeneity in responses. Although differences in the capacity of the most efficient gas power plants between the two market structures are the most important factor, we consider others. The heterogeneity in the response of power plant operators to fuel prices has material implications for carbon dioxide emissions.

Why marginal CO2emissions are not decreasing for US electricity: Estimates and implications for climate policy

“…Our estimates vary by location in the contiguous United States, hour of the day, and year to year over the last decade. Over this time, the US electricity sector has undergone unprecedented changes that affect CO 2 emissions, due, largely, to a shift from coal to natural gas for generation and to greater reliance on renewable sources of energy (e.g., wind and solar) ( 7 – 14 ). Examining how marginal emissions have changed over this period is therefore especially informative, as significant shifts in the sources of electricity generation are also expected over the coming decade.…”

Who (Else) Benefits From Electricity Deregulation? Coal Prices, Natural Gas, and Price Discrimination

“…To do this we exploit plausibly exogenous variation in natural gas prices. Variation in natural gas prices due to technological changes in oil and gas production, for example, hydraulic fracturing and horizontal drilling, has been used previously in a number of contexts (Cullen and Mansur ; Fell and Kaffine ; Knittel, Metaxoglou, and Trindale ; Linn and Muehlenbachs ; Preonas ).…”

“…As a result, wellhead prices have fallen from a peak of approximately $8 to $9 per thousand cubic feet (Mcf) in 2008 to approximately $3 to $4 per Mcf today. These changes have lead to shifts in electricity generation (Fell and Kaffine, Fell and Kaffine ; Knittel, Metaxoglou, and Trindale ) and have been utilized as a source of exogenous variation to study the impact of carbon pricing in the electricity sector (Cullen and Mansur ).…”

“…Linn and Muehlenbachs () and Knittel, Metaxoglou, and Trindale () use similar variation in natural gas prices at the same frequency in their analyses.…”

“…Recent work related to the movement of natural gas prices on fuel used in electricity generation includes Knittel, Metaxoglou, and Trindale () and Cullen and Mansur ().…”