The impact of cheap natural gas on marginal emissions from electricity generation and implications for energy policy

Abstract

We use quasi-experimental variation due to the introduction of fracking to estimate the short-run impact of a decrease in natural gas prices on marginal air pollution emissions from electricity producers. We find that cheap natural gas has shuffled the marginal fuel in different ways in different regions, changing the marginal emissions profile. The impact of cheap natural gas varies across U.S. regions as a function of the existing stock of electricity generation. We demonstrate the impact of these changes on the environmental benefits of energy policy by simulating the installation of wind and solar generating capacity in different regions around the U.S. We construct an hourly data set of potential renewable generation for both wind and solar power and combine that with our estimated marginal emissions. CO2 emissions offset by wind generation are around 6% lower on average, and emissions offset by solar generation are essentially flat, although the average hides significant variation across regions.