A bridge too far? The role of natural gas electricity generation in US climate policy

Abstract

Highlights
1 Abundant natural gas alone does not have a significant impact on CO$_2$ emissions.
2 About $10 bn/yr in natural gas investment disappears near a $40/ton carbon tax.
3 Existing gas assets face significant impairment risk under stringent climate policy.
4 Abundant gas lowers marginal welfare cost of abating small amounts of CO2.
5 Abundant gas raises the marginal cost of abatement levels relevant for climate policy.

Natural gas has been promoted as a ‘‘bridge’’ fuel toward a low-carbon future by offering near-term emissions reductions at lower cost. Existing literature is inconclusive on the short-term emissions benefits of more abundant natural gas. The long-lived nature of natural gas infrastructure also threatens to lock in emissions levels well above longer-term targets. If natural gas can offer short-to-medium term benefits, how much of a bridge should we build? Using ARTIMAS, a foresighted computable general equilibrium model of the US economy, we interact scenarios developed by the EMF-34 study group related to abundant natural gas, low-cost renewables, and a carbon tax to examine the role of natural gas in a carbon-constrained future. We find that abundant natural gas alone does not have a significant impact on CO2 emissions. We also find that, under a higher carbon tax, natural gas investment of approximately $10 billion per year declines to zero at a tax of about $40/ton and existing natural gas assets face significant risk of impairment. Last, the presence of abundant natural gas lowers the marginal welfare cost of abating small amounts of CO2 but is likely to raise the cost of abatement levels consistent with common climate objectives. The integrated welfare costs of climate policy depend on how much abatement we must undertake.