NRC study on the "hidden" costs of energy

External costs of energy encompass unpriced health damages from air pollution, coal and natural gas emissions, and vehicle life-cycle impacts, guiding policies like regulations, taxes, and carbon pricing as damages per tonne of CO2 rise.

The U.S. National Research Council has published a study on the hidden health and environmental costs of energy production and consumption in the United States. It put these costs at $120 billion in 2005.

The study — entitled Hidden Costs of Energy: Unpriced Consequences of Energy Production and Use — was conducted at the request of Congress and examines external energy costs in the U.S. These are those costs that are quantifiable and attributable to energy production or consumption, but not passed on to customers in the energy prices. The figures reflect mainly health damage and exclude the effects of climate change.

The report suggests, "Because these effects are not reflected in energy prices, government, businesses and consumers may not realize the full impact of their choices," a point underscored by IEA analyses on cutting emissions around the world today. It added, "When such market failures occur, a case can be made for government interventions — such as regulations, taxes or tradable permits — to address these external costs."

The committee that wrote the report focused on monetizing the damage of major air pollutants — sulfur dioxide, nitrogen oxides, ozone, and particulate matter — on human health, grain crops and timber yields, buildings, and recreation. When possible, it estimated both what the damages were in 2005 and what they are likely to be in 2030, assuming current policies continue and new policies already slated for implementation are put in place, with attention to climate policy impacts on electricity grids observed in other jurisdictions.

The committee also separately derived a range of values for damages from climate change; the wide range of possibilities for these damages made it impossible to develop precise estimates of cost, though early climate bill costs offer perspective on near-term economic impacts. However, all model results available to the committee indicate that climate-related damages caused by each tonne of carbon dioxide (CO2) emissions will be far worse in 2030 than now; even if the total amount of annual emissions remains steady, the damages caused by each tonne would increase 50-80%.

Electricity generation accounted for more than half of the external costs in 2005, practically all being from coal, mirroring hidden coal costs documented in other countries such as China. Coal-fired power plants are the single largest source of greenhouse gases in the U.S., emitting on average about a tonne of CO2 per megawatt-hour of electricity produced, the report says. The external cost of damages, primarily caused from emissions from burning coal, were $62 billion, or 3.2 cents per kilowatt-hour (c/kWh) of electricity produced from it. The report expects damages from coal to fall to 1.7 c/kWh by 2030. Electricity produced from natural gas produced $0.74 billion in damages (0.16 c/kWh) in 2005, primarily from air pollution. By 2030, these are expected to fall to 0.11 c/kWh.

"Life-cycle CO2 emissions from nuclear, wind, biomass and solar power appear to be negligible when compared with fossil fuels," according to the report, though debates over how green nuclear power is continue among experts today. However, the report says that the life cycle of nuclear power "does pose some risks. If uranium mining activities contaminate ground or surface water, for example, people could potentially be exposed to radon or other radionuclides through ingestion. Because the U.S. mines only about 5% of the world’s uranium, such risks are mostly experienced in other countries."

Motor vehicles produced $56 billion in health and other non-climate damages in 2005, considering the full life cycle of vehicles — only one-third was from their operation. Electric and plug-in hybrid vehicles resulted in higher non-climate damages than other technologies, due to reliance on fossil fuels for the electricity, and broader CO2 cuts without nuclear and clean coal can raise system costs as grids decarbonize. Energy used to create the batteries and electric motors adds 20% of the manufacturing portion of life-cycle damages.

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