The recent shale boom has led to a change in the relative price of fossil fuels, which could have an impact on the electricity sector. This column looks at the decision of electricity generators to switch from coal to gas in response to changes in relative prices. Investor-owned utilities were more likely than independent power producers to switch from coal-fired to gas-fired generation to take advantage of lower natural gas prices. This heterogeneity in generators’ response to fuel prices has material implications for CO2 emissions.
Christopher Knittel, Kostas Metaxoglou, André Trinidade, 04 December 2015
Lucas Davis, Catherine Hausman, 16 June 2014
Estimating the economic value of energy transmission is difficult because investments in transmission capacity are endogenous to market conditions. This column presents recent research that takes advantage of a natural experiment to generate a credible counterfactual. The unexpected closure of the San Onofre Nuclear Generating Station in California increased generation costs by $350 million per year; it also led to increased carbon emissions worth $320 million annually.
Carlo Carraro, Thomas Longden, Giacomo Marangoni, Massimo Tavoni, 27 November 2013
In recent years, European coal consumption has increased, while natural gas consumption has declined – despite Europe’s commitment to reduce greenhouse-gas emissions. This perverse scenario is partly attributable to EU policies. Subsidies to renewables and energy efficiency targets have the unfortunate side effect of lowering carbon prices, thus partially offsetting their environmental benefits. Raising the EU carbon price would be preferable to employing multiple policy instruments, since it would minimise distortions in energy markets, achieve cost efficiency, and raise fiscal revenues.
Lucija Muehlenbachs, Beia Spiller, Christopher Timmins, 29 September 2012
Natural gas is seen as an attractive source of energy – it is cleaner than coal and often more reliable. But there are potential risks from the drilling and hydraulic fracturing process. This column shows how shale gas extraction could reduce property prices, and argues that policymakers need to bear this in mind when thinking about the costs and benefits.