NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Price Regulation and Environmental Externalities: Evidence from Methane Leaks

Catherine Hausman, Lucija Muehlenbachs

NBER Working Paper No. 22261
Issued in May 2016, Revised in January 2017
NBER Program(s):Environment and Energy Economics

We estimate how much US natural gas distribution firms spend to reduce methane leaks. Methane is a significant contributor to climate change, so the wedge between the private and social benefits of abatement is large. Moreover, incentives to abate leaks are additionally weakened by this industry being a regulated natural monopoly: current price regulations allow many distribution firms to pass the cost of any lost gas on to their customers. Our estimates imply that too little is spent repairing leaks. In contrast, accelerated pipeline replacement cannot in general be justified by climate benefits alone.

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Document Object Identifier (DOI): 10.3386/w22261

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