Price regulations are widely used to reduce inefficiencies from natural monopolies, but they can introduce other inefficiencies, such as the failure to cost-minimize. We examine a previously unstudied distortion in the natural gas distribution sector that allows firms to pass the cost of lost gas on to their customers. We show that firms abate leaks below what is theoretically optimal for a private firm - expenditure on abatement is well below the cost of lost gas. Additionally, natural gas, primarily composed of methane, is both explosive and a potent greenhouse gas. Thus the climate impacts of leaked methane greatly exacerbate the inefficiencies created by imperfect price regulation.
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