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The Environmental Impacts of Fuel Switching Electricity Generators

Open Access Article

We examine the environmental and policy impacts of switching from oil-fired to natural gas-fired generation in New York City (NYC). We create an hourly panel of the fuel use of NYC's generators and use a semi-parametric approach to identify the fuel-price spread that induces the switch from oil to gas. We find that NYC's pollution emissions decrease significantly after generators switch to natural gas. Around two-thirds of these emission reductions come from reduced emission intensity within plants, while the remaining third comes from less intense dispatch of oil fired generators. To illustrate the policy impact, we simulate the introduction of a real time pricing (RTP) program in NYC. The results suggest that the environmental benefits of the RTP decreased by nearly 30% due largely to fuel switching. While we focus on RTP, these results can be used to evaluate any energy policy that has a heterogeneous impact across time or the demand profile. Keywords: Electricity, Natural Gas, Oil, Air Pollution

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Energy Specializations: Electricity – Generation Fuel Planning & Management; Electricity – Generation Technologies; Electricity – Markets and Prices ; Electricity – Local Distribution; Electricity – Transmission and Network Management; Energy and the Environment – Climate Change and Greenhouse Gases

JEL Codes: Q54: Climate; Natural Disasters and Their Management; Global Warming, Q53: Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling, Q41: Energy: Demand and Supply; Prices, Q40: Energy: General, Q35: Hydrocarbon Resources

Keywords: Electricity, Natural Gas, Oil, Air Pollution

DOI: 10.5547/01956574.37.4.jhol

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Published in Volume 37, Number 4 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.