The price-emissions nexus in U.S. residential electricity markets

Abstract

This study quantifies the impact of residential electricity prices on greenhouse gas (GHG) emissions, addressing a critical gap in climate policy analysis. Using panel data from 48 contiguous U.S. states (1990–2017), we develop a novel decomposition framework for the residential electricity price elasticity of GHG emissions (REPE-GHG) and employ two-step GMM estimation to address price endogeneity and dynamic consumption adjustments. Our results reveal a short-run residential electricity price elasticity of GHG emissions of −0.6% and a long-run elasticity of −5.2%. We find substantial regional heterogeneity, with elasticities in the Midwest and South significantly exceeding those in the Northeast. Moreover, the REPE-GHG exhibits a marked downward trend over time, accelerating post-2005. These findings suggest that uniform national pricing policies may be suboptimal and that price-based interventions become less effective as energy systems evolve.