Study shows how electricity pricing is linked to greenhouse gas emissions

A new study from the University of Massachusetts Amherst establishes a link between what U.S. households pay for electricity and greenhouse gas (GHG) emissions from power generation.

Analyzing data from the 48 contiguous states between 1990 and 2017, the study, published in Resource and Energy Economics, found that a 1% increase in residential electricity rates led to only a 0.6% reduction in emissions in the short term through measures like adjusting thermostats, turning off lights and running appliances less. However, the same rate hike produced a considerable 5.2% reduction in emissions over the long term through the adoption of more energy-efficient appliances, heating and cooling system upgrades, and better insulation.

Maryam Feyzollahi and Nima Rafizadeh, doctoral students in the Department of Resource Economics at UMass Amherst, determined that, on average, it takes about nine years for households to fully adjust to higher power rates. This suggests that energy policy decisions made today may not show their full effects until around 2034.

Residential electricity demand constitutes about 40% of total electricity consumption in the U.S. The electricity sector accounts for about 25% of GHG emissions nationally.

Feyzollahi and Rafizadeh created a new metric called the Residential Electricity Price Elasticity of GHG emissions (REPE-GHG). This measure captures the full chain reaction from a price change to an emissions outcome, overcoming long-standing challenges in measuring how prices affect both consumption and emissions.

“Our approach integrates both sides of the equation—demand responses and supply-side emissions intensity—giving a complete picture of the environmental consequences of pricing policies,” Feyzollahi explains.

The study also uncovers strong regional disparities. States in the Midwest and South exhibited much higher price sensitivity than those in the Northeast, primarily due to differences in electricity generation sources. Regions relying heavily on fossil fuels saw greater emissions reductions when consumption fell in response to price hikes.

However, the research shows that the relationship between electricity prices and GHG emissions has weakened, especially after 2005. This trend coincides with major shifts in the energy sector, including the rise of renewables, falling natural gas prices due to fracking and the widespread adoption of energy-efficient technologies.

“I would emphasize that while our study shows declining price effectiveness, this does not mean price signals are irrelevant,” Rafizadeh cautions. “Rather, it suggests we need smarter pricing mechanisms that work in concert with other policies to guide the clean energy transition effectively.”

Those mechanisms could range from time-of-use pricing to demand charges and could be paired with policies such as appliance rebate programs or financing for efficiency upgrades.

Feyzollahi and Rafizadeh argue that regional customization of electricity pricing and climate policy could yield more effective outcomes than a one-size-fits-all national approach.

“What works in Texas might not work in Massachusetts,” Feyzollahi notes, “because of different generation and mixes and market structures.”