The Environmental Consequences of Price Regulation: Lessons from the U.S. Natural Gas Market
39 Pages Posted: 25 Aug 2022
Abstract
Price regulation can lead to large distortions in outcomes, particularly unintended environmental consequences. This paper uses the imposition of a U.S. wellhead natural gas price ceiling from 1954-1989 as a setting to estimate these environmental impacts. Using a microdata-based approach to estimate counterfactual residential heating oil and natural gas consumption from 1960-2000, this paper shows the price ceiling led to an average of $5.6 billion annually in environmental damage. This amount more than doubles previous estimates of the cost of the price ceiling. Losses were highest in the Northeast and Mid-Atlantic and peaked from 1967-1980 at $8 billion annually. (JEL Q48, L51, Q51) keywords: welfare loss, price ceiling, natural gas, environment
Keywords: welfare loss, price ceiling, natural gas, environment
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