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Emerging Environmental Markets: Improving the Competitiveness of Natural Gas

Abstract:
Current U.S. regulations focus on market approaches to reduce SO2, NOx, and CO2 pollution, allowing affected firms to choose the least-cost compliance alternative. Natural gas, a relatively benign fuel from an environmental perspective, could realize a substantial increase in demand if it is competitive. The viability of gas as an alternative has been questioned due to high forecast price and unstable supply. This paper assesses potential efficiency gains in the completion and production of natural gas wells which may lower production costs and increase recoverable reserves. Coupled with the premium that can be paid for its environmentally desirable qualities, gas can potentially be a feasible alternative. However, the window of opportunity is limited, because many industries, such as electric power generation, require decisions involving up-front capital expenditures that lock the firm into a specific compliance mechanism and fuel.

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Energy Specializations: Natural Gas – Markets and Prices; Energy and the Environment – Policy and Regulation

JEL Codes:
L13 - Oligopoly and Other Imperfect Markets
E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General

Keywords: Natural gas, Environmental markets, US, CAAA, Air pollution, SO2, CO2, NOx

DOI: 10.5547/ISSN0195-6574-EJ-Vol15-No3-5


Published in Volume15, Number 3 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.