American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Energy Transitions in Regulated Markets
American Economic Review
(pp. 2928–61)
Abstract
Natural gas has replaced coal as the dominant fuel for US electricity generation. However, utilities in regulated US states have retired coal more slowly than others. We build a structural model of rate-of-return regulation during an energy transition where utilities face trade-offs between lowering costs and maintaining and using legacy capacity. A regulated utility facing carbon taxes lowers short-run coal generation 48 percent as much as a cost minimizer would. Thirty years after a sudden energy transition, a cost minimizer has retired 71 percent more coal capacity than the regulated utility. Alternative regulations may jeopardize affordability and reliability goals during energy transitions.Citation
Gowrisankaran, Gautam, Ashley Langer, and Mar Reguant. 2026. "Energy Transitions in Regulated Markets." American Economic Review 116 (8): 2928–61. DOI: 10.1257/aer.20240094Additional Materials
JEL Classification
- D24 Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- L94 Electric Utilities
- L98 Industry Studies: Utilities and Transportation: Government Policy
- Q35 Hydrocarbon Resources
- Q48 Energy: Government Policy