Climate Change and US Electric Power

There has been intense recent interest in the vulnerability of the US electric power sector to the potentially adverse impacts of global warming. In this paper I use a three-phased approach to investigate the consequences of climate-driven temperature increases on electricity supply and demand within US states. Reduced-form long-run responses of electricity demand to temperature are estimated based on monthly data for the US using a dynamic econometric model. The resulting climate response functions are then applied to projections of temperature taken from a global climate model simulation for the year 2050 to construct vectors of shocks to electricity demand. Finally, the economic effects of these shocks are simulated within an interregional computable general equilibrium model that incorporates detailed information on power markets and generation technologies. My estimated temperature responses substantially exceed similar published estimates. I find that by 2050, projected climate change amplifies states’ electricity demand by as much as 16%, with large increases concentrated in states that already have high summer temperatures. These demand shocks have only a slight effect on electricity prices, but are regressive in their incidence, and induce an expansion of generation that increases US carbon emissions by more than 6%. ∗Email: [email protected]. Address: Rm. 471, 675 Commonwealth Ave., Boston MA 02215. I thank Karina Veliz-Rojas for expert research assistance.