Johanna Arlinghaus (@joarlinghaus.bsky.social)

Energy Transitions in Regulated Markets (Forthcoming Article) - Natural gas has replaced coal as the dominant fuel for U.S. electricity generation. However, utilities in regulated U.S. 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 tradeoffs between lowering costs and maintaining and using legacy capacity. A regulated utility facing carbon taxes lowers short-run coal generation 48% as much as a cost minimizer would. Thirty years after a sudden energy transition, a cost minimizer has retired 71% more coal capacity than the regulated utility. Alternative regulations may jeopardize affordability and reliability goals during energy transitions. https://www.aeaweb.org/articles?id=10.1257/aer.20240094&from=f