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Achieving the Clean Power Plan 2030 CO2 Target with the New Normal in Natural Gas Prices

The U.S. Clean Power Plan (CPP) seeks to reduce CO2 emissions from electric power by 32% from 2005 levels, in part, by adjusting the generation mix. Generating technologies can substitute via two distinct, but interdependent mechanisms: i) utilization - i.e. adjustment of operations of existing capacity and ii) expansion - i.e. decommissioning and construction of capacity. We develop a framework for analyzing these interdependent mechanisms, then construct and validate an empirical model of the U.S. electricity sector using recent data. Assuming current low gas prices persist, increasing utilization of gas (at the expense of higher-emitting coal) will drive higher returns to gas capacity. As a result, under our business-as-usual scenario for 2030 (no CPP) we project approximately 26% less CO2 emissions than 2005 levels, indicating that the CPP target could be met with only limited policy intervention.

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Energy Specializations: Natural Gas ; Energy and the Environment – Climate Change and Greenhouse Gases; Energy Modeling

JEL Codes: Q42: Alternative Energy Sources, Q41: Energy: Demand and Supply; Prices, Q54: Climate; Natural Disasters and Their Management; Global Warming, Q35: Hydrocarbon Resources, L94: Electric Utilities

Keywords: Clean Power Plan, Electricity generation, Carbon emissions, Technology substitution, Capacity utilization, Capacity expansion

DOI: 10.5547/01956574.38.5.jpet

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Published in Volume 38, Number 5 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.


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