Are we fracked? The impact of falling gas prices and the implications for coal-to-gas switching and carbon emissions

Abstract

We discuss the environmental implications of the dramatic drop in the price of natural gas following the US shale gas boom due to the rise of modern hydraulic fracturing. In the first part of the paper, we argue that the ensuing drop in the price of natural gas has an ambiguous effect on global carbon emissions because of three countervailing effects: coal-to-gas switching in the US electric power sector, an increase in the relative cost of US renewable energy sources, and an increase in US coal exports. Our position is that without a meaningful cap, the shale gas boom is likely to increase global emissions and the period during which natural gas is used as a bridge fuel to clean energy should be limited. In the second part of the paper, we review recent environmental policies for the US electric power sector that have contributed to reducing carbon emissions, and discuss the complex economics of the newly introduced Clean Power Plan. Although the availability of cheap natural gas has been factored in US environmental policy and has helped electricity generators to achieve compliance with various rules and regulations, it should not derail policy from its long-run objective, which is the transition to a less fossil-fuel dependent economy. © The Authors 2016. Published by Oxford University Press.