This paper examines how carbon pricing would reduce emissions in the electricity sector. Both carbon prices and cheap natural gas reduce the historic cost advantage of coal plants. The shale revolution resulted in unprecedented variation in natural gas prices that we use to estimate the potential near-term effects of carbon prices. Estimates imply that a price of $20 ($70) per ton of CO2 would reduce emissions by 5 (10) percent. Carbon prices are most effective at reducing emissions when natural gas prices are low, but have negligible effects when gas prices are at levels seen prior to the shale revolution.
Cullen, Joseph A., and Erin T. Mansur.
"Inferring Carbon Abatement Costs in Electricity Markets: A Revealed Preference Approach Using the Shale Revolution."
American Economic Journal: Economic Policy,
Industry Studies: Utilities and Transportation: Government Policy
Nonrenewable Resources and Conservation: Government Policy
Climate; Natural Disasters and Their Management; Global Warming
Environmental Economics: Government Policy