Examining the relationship between shale gas production and carbon capture and storage under CO2 taxes based on the social cost of carbon

• We use the MARKAL energy system model to examine the impacts of the carbon taxes on energy system.
• In the short term, the share of natural gas increases at the expense of coal-fired generation.
• In the long term, a sustained low natural gas price may discourage investment in nuclear, CCS and renewables.
• Beyond the electricity sector, increased gas supply does not significantly change demand in the base case scenario.
• CCS, both on coal and natural gas plants, will be necessary to meet high CO2 reduction goals.

One of the major challenges of the U.S. energy policy is to achieve greenhouse gases emissions reductions at low cost. Economists tend to prefer policies that effectively establish a price of emissions. This paper examines the impacts of carbon taxes that are equal to the social costs of carbon on the U.S. energy system in the long-term future under different assumptions on the potential of shale gas development and with respect to carbon capture and storage deployment.The analysis shows how the mutual effects of substitution within both the supply and demand-side play an important role in constraining or enabling the penetration of shale gas into the energy mix. The study discusses multiple scenarios and helps guide policy making by identifying areas where, and the extent to which, climate policy can reinforce energy objectives in the U.S.