Working Paper

Does Water Scarcity Shift the Electricity Generation Mix toward Fossil Fuels? Empirical Evidence from the United States

Sep 27, 2016 | Jonathan Eyer, Casey J. Wichman

Summary

An analysis of the impact of water scarcity on the electricity sector in the United States demonstrates how water scarcity shifts electricity production from hydropower to natural gas, resulting in increased carbon dioxide emissions.

Key Findings

  • We econometrically estimate the effect of water scarcity on the US electricity generation fuel mix between 2001 and 2012.
  • Hydroelectricity generation is reduced substantially in response to drought, whereas natural gas generation increases.
  • Due to the switch toward fossil fuels, we estimate the average social costs of drought-induced carbon dioxide emissions to be approximately $51 million per state each year; this effect, however, is much larger for regions that rely heavily on hydropower

Abstract

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 as well as local pollutants. We quantify the average social costs of water scarcity to be $51 million per state-year (2015 dollars) attributable to CO2 emissions alone; however, this figure is much larger for regions that rely heavily on hydropower.