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This paper examines how carbon pricing would reduce emissions in the electricity sector. Both carbon prices and cheap natural gas reduce the historic cost advantage of coal plants. The shale revolution resulted in unprecedented variation in natural gas prices that we use to estimate the potential near-term effects of carbon prices. Estimates imply that a price of 20 (70) per ton of CO 2 would reduce emissions by 5 (10) percent. Carbon prices are most effective at reducing emissions when natural gas prices are low, but have negligible effects when gas prices are at levels seen prior to the shale revolution. (JEL L94, L98, Q35, Q38, Q54, Q58)
Cullen et al. (Mon,) studied this question.