Renewable energy and low-carbon policy spillover effects on natural gas demand

ABSTRACT

Recent legislation intended to increase the use of renewable energy sources and lower the amount of carbon dioxide emissions from energy has changed the structure of energy markets. The effect of these policies on carbon-intensive fuel sources is rather obvious. For natural gas, though, the effect is not immediately clear. This letter uses a structural model of natural gas demand to uncover whether these policies have led to increased demand because natural gas is a relatively clean source of energy that couples well with renewables or if these policies have crowded out natural gas on net.

KEYWORDS:

• Natural gas
• Carbon dioxide
• Renewable portfolio standards
• Structural demand

JEL CLASSIFICATION:

• L98
• Q41
• Q42
• Q48

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

¹ This is contrary to generation from coal which is commonly used to meet base-load demand. Coal-powered facilities are most efficient and cost-effective when left running at a constant power output amount.

² The origin for the right-hand axis is set to the average of shale gas production prior to 2001.

³ For example, the credit expired at the beginning of 2013, was renewed midway through December 2013, and then expired again on 1 January 2014.

⁴ Moreover, New Jersey left the RGGI midway through the policy’s tenure.

⁵ Supply-side estimates are available from the author upon request.

⁶ The average US household electricity consumption per month is 909 kWh.