Working Paper: NBER ID: w22261
Authors: Catherine Hausman; Lucija Muehlenbachs
Abstract: 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.
Keywords: Natural Gas; Methane Emissions; Price Regulation; Environmental Economics
JEL Codes: D22; D42; L95; Q41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Price regulations (L51) | Expenditures on leak repairs (H76) |
| Expenditures on accelerated pipeline replacement (H54) | Costs of lost gas and climate benefits (Q54) |
| Average cost of abatement for utilities (Q52) | Average commodity value of leaked gas (L95) |
| Regulatory environment (G38) | Expenditures on leak abatement (H76) |
| Increased stringency of safety regulations in 2010 (G18) | Expenditures on leak abatement (H76) |
| Increased regulatory scrutiny (G18) | Incentives to abate leaks (H26) |
| Regulatory changes (G18) | Utility behavior towards leak mitigation (L95) |