The Impact of Cheap Natural Gas on Marginal Emissions from Electricity Generation and Implications for Energy Policy

We use quasi-experimental variation due to the introduction of fracking to estimate the impact of a decrease in natural gas prices on marginal air pollution emissions from electricity producers. We find natural gas generation has displaced coal fired generation as the marginal fuel source significantly 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 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 and solar power have fallen over most, but not all of the country due to cheap natural gas. JEL Classification: Q4, L5, Q5, H4