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What effect will BC LNG exports have on global GHG emissions? It depends on elasticities

posted May 2, 2017, 11:57 AM by Joel Wood   [ updated May 2, 2017, 11:58 AM ]

“What effect will BC LNG exports have on global (non-BC) GHG emissions?”

If I were trying to answer this question, I would start with trying to answer the following three questions.

Question 1: How will BC LNG exports affect the price of natural gas in the Asian markets? To determine this, we need to know information about the inverse-demand function for NG in Asia. If it is close to horizontal, then BC LNG will have negligible impact on the price of nat gas. The argument to support this is that BC exports would be a small portion of total quantity, therefore would have little impact on price. If it is steep instead, then BC LNG exports will have a bigger price impact, i.e., BC LNG exports are large enough to have a noticeable impact on price.

Question 2:  Natural gas and coal are clearly substitutes for the generation of electricity. How much will a change in natural gas price affect demand for coal? (i.e., What is the elasticity of substitution between natural gas and coal?)

Question 3: Is natural gas a complement or a substitute to the generation of electricity from wind and solar? Solar and Wind generation are intermittent (low capacity factors), fast ramping natural gas plants can fill the void left by intermittency. In this sense gas and renewables are complementary. Lower price for gas will lead to more renewables. On the other hand, base load gas generation could be a substitute to wind and solar: lower gas prices lead to more gas plants and less renewable capacity.

Questions 2 and 3 are mostly irrelevant if the answer to Question 1 is that BC LNG exports have a negligible effect on price. If this is the case, then BC LNG has a negligible effect on coal emissions and a negligible effect on renewables.

If BC LNG exports impact price, then the effect on global (non-BC) emissions will depend on the questions to Questions 2 and 3.

These are all questions that could be answered empirically, but require the right data and careful econometric analysis.