The impact of the coal-gas relative price on the CO2 marginal abatement effect of renewable electricity in the US

This paper evaluates the impact of the coal-gas relative price on the CO
²
marginal abatement effect of renewable electricity in the US between 2008 and 2020. Using monthly plant level data for over 5500 power plants, we estimate a Heckman two-steps model to capture the decision to operate a plant and the effect of our control variables on emissions conditional on operating. We find that emissions decrease at an increasing rate with the cost ratio, that wind and solar generation decrease also CO
2
emissions, and that the interaction effect between relative fuel prices and renewables generation is negative and significant in regions with high wind or high solar penetration. This interaction effect implies that cheaper natural gas relative to coal and greater wind or solar generation levels together lead to a greater reduction in emissions than either factor in isolation.