Working Paper: NBER ID: w28949
Authors: Rebecca J. Davis; J. Scott Holladay; Charles Sims
Abstract: We summarize the history of U.S. coal-fired plant retirements over the last decade, describe planned future retirements, and forecast the remaining operating life for every operating coal-fired generator. We summarize the technology and location trends that are correlated with the observed retirements. We then describe a theoretical model of the retirement decision coal generator owners face. We use retirements from the last decade to quantify the relationships in the model for retired generators. Our model predicts that three-quarters of coal generation capacity will retire in the next twenty years, with most of that retirement concentrated in the next five years. Policy has limited ability to affect retirement times. A $20 per MWh electricity subsidy extends the average life of a generator by six years. A $51 per ton carbon tax brings forward retirement dates by about two years. In all scenarios, a handful of electricity generators remain on the grid beyond our forecast horizon.
Keywords: Energy market; Structure barriers to exit; Optimal stopping; Uncertainty; Irreversibility
JEL Codes: H40; L10; L50; L94; Q4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Carbon tax of $51 per ton (Q58) | Average retirement date (J26) |
| Electricity subsidy of $20 per MWh (L94) | Average life of a coal generator (L94) |
| Carbon tax of $51 per ton (Q58) | Retirement timing of coal generators (J26) |
| Electricity subsidy of $20 per MWh (L94) | Retirement trajectory of coal plants (J26) |
| Market forces (P42) | Retirement of coal generation capacity (L94) |