Does water scarcity shift the electricity generation mix toward fossil fuels? Empirical evidence from the United States

Water withdrawals for the energy sector are the largest use of fresh water in the United States. Using an econometric model of monthly plant-level electricity generation levels between 2001 and 2012, we estimate the effect of water scarcity on the US electricity fuel mix. We find that hydroelectric generation decreases substantially in response to drought, although this baseline generation is offset primarily by natural gas, depending on the geographic region. We provide empirical evidence that drought can increase emissions of CO2 and local pollutants. We quantify the social costs of water scarcity to be $330,000 per month for each plant that experiences a one-standard deviation increase in water scarcity (2015 dollars), a relationship that persists under future projections of water scarcity.