Electricity generation accounts for 40% of global CO₂ emissions, making power sector decarbonization critical to achieving climate goals. Yet most climate policies focus on domestic interventions—renewable subsidies, carbon taxes—without considering how globally traded fossil fuels create international spillovers. In “Power Decarbonization in a Global Energy Market: The Climate Effect of U.S. LNG Exports,” Constanza Abuin examines an alternative question: Can the United States influence global electricity decarbonization through its liquified natural gas (LNG) export policy?
The stakes are high. The U.S. emerged as the world’s largest LNG exporter by 2023, exporting 18% of its natural gas production. Proposed LNG export terminal projects could more than double this capacity by 2030. In January 2024, the U.S. Department of Energy paused new export approvals to reassess their environmental impact, triggering intense debate about whether LNG expansion helps or hinders the climate transition.
Modeling Global Energy Markets
To answer this question, the author develops a dynamic model of electricity investment and global fossil fuel trade. The model captures how generators decide whether to build new power plants or retire existing ones based on expected profits, which depend critically on fossil fuel prices determined in global trade equilibrium.
The model accounts for three key margins. First, power generators are long-lived assets, meaning investment decisions have lasting consequences. Second, natural gas poses a dynamic trade-off: cheaper gas can displace high-emission coal today but may delay cleaner renewable adoption tomorrow. Third, because fossil fuels are internationally traded, domestic policies create cross-border spillovers through price effects.
The author estimates the model using comprehensive data on global electricity assets and fossil fuel markets. She recovers how sensitive power generation is to fuel price changes, how supply curves respond to price shifts, and what drives generators’ entry and exit decisions across diverse markets worldwide.
A Net Climate Benefit with Important Caveats
Abuin simulates the evolution of global fuel prices, electricity generation, and emissions in 2025-2070 under two scenarios: one in which all U.S. LNG export projects under review get built and one in which only those currently operating or under construction are ever active. She finds that the proposed LNG expansion generates a cumulative reduction in global power CO2 emissions worth $314 billion in social savings. However, this headline result masks important geographic and temporal variation.
In the U.S., the expansion reduces cumulative power emissions by 6% relative to baseline. The mechanism is straightforward: exporting more gas increases domestic U.S. gas prices, making gas generation less profitable and accelerating renewable adoption. The rest of the world tells a more complex story. Initially, cheaper international LNG prices drive short-term emission reductions as gas displaces coal in countries with large coal fleets. But this benefit reverses over time. Lower gas prices delay renewable investment globally, and by 2035, annual emission increases begin accumulating in importing countries. Long-term emission gains eventually outweigh short-term reductions, though they remain smaller than U.S. emission reductions.
The Carbon Lock-In Problem
Why do emission increases persist even decades after the LNG expansion? The answer lies in the sunk nature of infrastructure investment. When LNG prices fall, importing countries build new gas power plants. Once built, these plants remain active for decades, even if gas prices later rise.
Abuin tests whether reversing the LNG expansion in 2050 could mitigate long-term emission increases. Surprisingly, the reversal proves ineffective and risks increasing emissions relative to a permanent expansion. Countries that invested in gas capacity during the low-price period continue generating gas-fueled power, while coal generators temporarily regain competitiveness when LNG prices spike upward after the capacity reversal.
Policy Coordination Matters
If long-term emission increases in importing countries limit the climate benefit, can policies address this? Abuin finds that coordinating the LNG expansion with carbon caps in major importers—the EU, UK, and Japan—increases global social cost savings by 62%. These caps prevent cheaper gas from crowding out renewables, preserving long-term decarbonization while still allowing short-term coal-to-gas switching.
Implications for Energy Trade Policy
This research offers three key lessons for policymakers. First, fossil fuel trade infrastructure decisions have substantial, lasting impacts on global decarbonization. Second, temporary interventions in energy markets can have permanent consequences due to infrastructure lock-in, making long-term considerations essential. Third, international climate policy coordination significantly enhances the effectiveness of supply-side policies like export infrastructure regulation.
The findings suggest that fossil fuel exporters face genuine trade-offs when regulating export capacity: domestic decarbonization benefits may come alongside delayed transitions abroad. Maximizing global climate benefits requires either domestic carbon policies in importing countries or careful consideration of how export policies interact with the existing infrastructure base and future technology costs in destination markets.