This research shows how a carbon price impacts electricity price formation by reconfiguring the economic trade-offs between technologies, and then demonstrates how relative fuel price impacts from a carbon policy can influence end-use capital investment decisions to incentivize (or disincentivize) electrification. The results show that a carbon price impacts electricity prices less, proportionally, than it impacts prices for natural gas and gasoline, implying that an economy-wide carbon price would act as an incentive for electrification, and an electric-sector only carbon price would act as a disincentive for electrification. These concepts are illustrated in a scenario analysis featuring a high-level representation of the Carbon Leadership Council’s “Baker-Schultz” carbon tax proposal of 2019, implemented in EPRI’s U.S. Regional Economy, Greenhouse Gas, and Energy (US-REGEN) Model.
Authors Geoffrey J. Blanford