Transitioning to Clean Power 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 build and estimate a multi-country dynamic model of investment in power assets. In the model, the carbon intensity of electricity production is determined by the entry and exit of power plants using alternative fuels (coal, natural gas, or renewables), and the local price of fossil fuel inputs is determined in a global trade equilibrium. I use the model to analyze the climate effects of building all U.S. liquified natural gas (LNG) export terminals currently seeking federal approval, which would double U.S. export capacity by 2030. The shock generates a 10% reduction in U.S. electricity emissions, driven by an increase in local gas prices that accelerates the clean transition. Meanwhile, cheaper LNG abroad initially reduce importers’ emissions by incentivizing the exit of coal-fueled plants, particularly in developing economies. This initial effect is reversed in the long-term: cheaper LNG delays the entry of renewable power and batteries abroad. By 2040, the long-term increase in emissions in importing countries outweighs emission reductions in the U.S.
