How Do Natural Gas Prices Affect Electricity Prices and the Environment? (joint research with Joshua Linn and Yushuang Wang)
Between 2008 and 2012, the delivered price of natural gas to the U.S. power sector fell 60 percent. We show, in theory and in practice, the effects of this price shock on electricity prices and the environment. The pass-through rate of a decrease in gas prices to electricity prices is higher when there is less shifting from high-emission coal-fired generation to lower-emission gas-fired generation. Therefore, areas that experience larger reductions in electricity prices experience smaller reductions in emissions rates. Using detailed data on electricity prices, fuel consumption, and fuel prices from 2001 to 2012, we confirm this hypothesis.