Energy Transitions in Regulated Markets
Abstract
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.
Fields of Study & Subjects
Climate Change Policy and Economics
Energy
Environment
and Transportation Policies
Economic Growth
Publication details
- Journal / source
- American Economic Review
- Publisher
- American Economic Association
- Volume
- 116
- Issue
- 8
- Pages
- 2928–2961
- Publication date
- 31 July 2026
- Language
- EN