Power Decarbonization in a Global Energy Market: The Climate Effect of U.S. LNG Exports
Investment in clean power depends on the price of internationally traded fossil fuels. To what extent can major fossil fuel exporters like the U.S. influence global electricity decarbonization through their trade policy? To answer this question, I develop and estimate a dynamic, multi-country model of power asset investment, where the carbon intensity of electricity generation is affected by the entry and exit of plants using alternative fuels and the local price of fossil inputs is determined in a global trade equilibrium. Using this model, I assess the climate impact of granting federal approval to all proposed U.S. liquified natural gas (LNG) export terminal projects, which would double U.S. export capacity by 2030. Results indicate a net decrease in global emissions through 2070, primarily due to higher local gas prices in the U.S., leading to lower domestic gas generation and accelerated renewable adoption. In the rest of the world, short-term emissions fall as reliance on coal drops, yet delayed renewable uptake drives long-term emissions up. Combining the LNG expansion with carbon policies in importing countries substantially boosts carbon savings. Conversely, reverting LNG capacity to baseline by 2050 shows little impact, underscoring the risk of carbon lock-in in settings with long-lived infrastructure.
