The Granger instantaneous-causality test is applied to explore the potential causal relationships between wholesale electricity and natural-gas prices in California. The test shows these relationships to be bi-directional, and reveals California's electricity and natural-gas markets to be as inextricably intertwined as casual observation and theoretical considerations would suggest they ought to be. This meshing of markets exacerbated the effects of California's natural-gas crisis on the contemporaneous electricity crisis, while concurrently the electricity crisis may have contributed to the dysfunction in the national-gas market and helped to precipitate the natural-gas crisis. The finding supports an integrated approach, as opposed to a piecemeal approach, for formulating energy policy recommendations, not just in California but in the world at large. Copyright © 2005 Elsevier Ltd. All rights reserved.
CitationWoo, C.-K., Olson, A., Horowitz, I., & Luk, S. (2006). Bi-directional causality in California's electricity and natural-gas markets. Energy Policy, 34(15), 2060-2070. doi: 10.1016/j.enpol.2005.02.016
- Electricity crisis
- Natural-gas crisis