Price Regulation and Environmental Externalities: Evidence from Methane Leaks / Catherine Hausman, Lucija Muehlenbachs.

Format:

Book

Author/Creator:

Hausman, Catherine.

Contributor:

National Bureau of Economic Research.

Muehlenbachs, Lucija.

Series:

Working Paper Series (National Bureau of Economic Research) no. w22261.

NBER working paper series no. w22261

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Price Regulation and Environmental Externalities

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2016.

Summary:

We estimate expenditures by US natural gas distribution firms to reduce natural gas leaks. Reducing leaks averts commodity losses (valued at around $5/Mcf), but also climate damages ($27/Mcf) because the primary component of natural gas is methane, a potent greenhouse gas. In addition to this private/social wedge, incentives to abate are weakened by this industry's status as a regulated natural monopoly: current price regulations allow many distribution firms to pass the cost of any leaked gas on to their customers. Our estimates imply that too little is spent repairing leaks--we estimate expenditures substantially below $5/Mcf, i.e. less than the commodity value of the leaked gas. In contrast, expenditures on accelerated pipeline replacement are in general higher than the combination of gas costs and climate benefits (we estimate expenditures ranging from $48/Mcf to $211/Mcf). We conclude by relating these findings to regulatory-induced incentives in the industry.

Notes:

Print version record

May 2016.