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 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.