This website uses cookies.

By clicking the "Accept" button or continuing to browse our site, you agree to first-party and session-only cookies being stored on your device to enhance site navigation and analyze site performance and traffic. For more information on our use of cookies, please see our Privacy Policy.

  1. Home
  2. Journals
  3. American Economic Review
  4. Forthcoming Articles
  5. Energy Transitions in Regulated Markets

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

Energy Transitions in Regulated Markets

  • Gautam Gowrisankaran
  • Ashley Langer
  • Mar Reguant
American Economic Review (Forthcoming)

Abstract

Natural gas has replaced coal as the dominant fuel for U.S. electricity generation. However, utilities in regulated U.S. states have retired coal more slowly than others. We build a structural model of rate-of-return regulation during an energy transition where utilities face tradeoffs between lowering costs and maintaining and using legacy capacity. A regulated utility facing carbon taxes lowers short-run coal generation 48% as much as a cost minimizer would. Thirty years after a sudden energy transition, a cost minimizer has retired 71% more coal capacity than the regulated utility. Alternative regulations may jeopardize affordability and reliability goals during energy transitions.

Downloads