- Joint Program Report
Abstract: The shale gas boom in the US is widely seen as responsible for reducing US CO2 emissions through substitution of gas for coal in power generation. The story is more complex because increased gas use in other sectors may not be displacing carbon-intensive fuels, but rather reducing incentives to adopt more efficient processes and less carbon-intensive products. In this paper we consider the emissions implications for the U.S. under a counterfactual modeling of the 2011 US economy without the shale gas boom. We apply a general equilibrium model of the 2011 US economy, estimating the supply responses of coal-fired and gas-fired generations based on U.S. state-level data. We find that under the counterfactual, the higher gas price has a dampening effect on economic activities and consequently lowers non-power sectors’ emissions. As many have observed, absent a full economy-wide model, power sector emissions increase because of gas-to-coal switch as a result of higher gas prices. However, we find across a wide range of model settings that if gas prices would have remained at 2007 levels in 2011, economy-wide emissions would have been lower. Only a model setting that allowed very little reduction in electricity demand, reflecting a short-run demand response, generated an increase in economy-wide emissions. In other words, the shale gas boom likely led to higher emissions except possibly in the very short run, and in all cases in the long run if the low gas prices persist.