October 20, 2009
Large External Costs For Fossil Fuels Usage

Market prices do not capture all the costs associated with burning of fossil fuels for electric power generation, transportation, and other uses.

WASHINGTON -- A new report from the National Research Council examines and, when possible, estimates "hidden" costs of energy production and use -- such as the damage air pollution imposes on human health -- that are not reflected in market prices of coal, oil, other energy sources, or the electricity and gasoline produced from them. The report estimates dollar values for several major components of these costs. The damages the committee was able to quantify were an estimated $120 billion in the U.S. in 2005, a number that reflects primarily health damages from air pollution associated with electricity generation and motor vehicle transportation. The figure does not include damages from climate change, harm to ecosystems, effects of some air pollutants such as mercury, and risks to national security, which the report examines but does not monetize.

We use too much fossil fuels because the market doesn't capture all their costs in the market prices for their use.

Damages caused by coal electric plant conventional pollution (unrelated to climate change) adds up to 3.2 cents per kilowatt hour generated in the US.

Coal accounts for about half the electricity produced in the U.S. In 2005 the total annual external damages from sulfur dioxide, nitrogen oxides, and particulate matter created by burning coal at 406 coal-fired power plants, which produce 95 percent of the nation's coal-generated electricity, were about $62 billion; these nonclimate damages average about 3.2 cents for every kilowatt-hour (kwh) of energy produced. A relatively small number of plants -- 10 percent of the total number -- accounted for 43 percent of the damages. By 2030, nonclimate damages are estimated to fall to 1.7 cents per kwh.

Climate related costs of CO2 emissions are harder to calculate and so the estimated costs vary over 2 orders of magnitude.

Coal-fired power plants are the single largest source of greenhouse gases in the U.S., emitting on average about a ton of CO2 per megawatt-hour of electricity produced, the report says. Climate-related monetary damages range from 0.1 cents to 10 cents per kilowatt-hour, based on previous modeling studies.

A small number of coal plants produce a large fraction of all the coal pollution. That small number of plants should be shut down or forced to rapidly upgrade their equipment.

Burning natural gas generated far less damage than coal, both overall and per kilowatt-hour of electricity generated. A sample of 498 natural gas fueled plants, which accounted for 71 percent of gas-generated electricity, produced $740 million in total nonclimate damages in 2005, an average of 0.16 cents per kwh. As with coal, there was a vast difference among plants; half the plants account for only 4 percent of the total nonclimate damages from air pollution, while 10 percent produce 65 percent of the damages. By 2030, nonclimate damages are estimated to fall to 0.11 cents per kwh. Estimated climate damages from natural gas were half that of coal, ranging from 0.05 cents to 5 cents per kilowatt-hour.

Coal and natural gas electric power could in theory be taxed at the amount of their external costs. However, even if that happened the money would not accurately flow to those who get stuck with the costs in proportion to the costs of each person. Though a tax would reduce the total size of the external costs by providing incentives to shift toward use of cleaner power sources. Matthew Wald of the New York Times has a pretty good article in Technology Review about the prospects for nuclear power as an alternative to fossil fuels. One of nuclear power's problems: US government subsidies for wind power favor wind over nuclear power.

Wind now gets bigger production subsidies than nuclear on every kilowatt-hour generated, proportionally more loan guarantees, and a guaranteed market: many states insist on a certain quota of renewable energy, sometimes regardless of cost. In contrast, nuclear power receives production subsidies on only the first 6,000 megawatts of capacity (four or five reactors' output), and its pool of loan guarantees is shrinking relative to the price of construction.

"Right now, the federal incentives are much more conducive to pushing forward renewables," said Jim Miller, the chief executive of the energy company PPL, in June. His company, based in Allentown, PA, would like to build a reactor but will not do so without federal loan guarantees. It will not get them, at least not under the 2005 Energy Policy Act, in which Congress approved only enough to assist a handful of plants: $18.5 billion. "Nothing is currently in place to move the nuclear industry along at the pace people perceived it would move when the 2005 act was passed," Miller says.

Share |      Randall Parker, 2009 October 20 11:44 PM  Energy Policy

James Bowery said at October 21, 2009 9:29 AM:

You forgot to mention the military costs of securing fossil fuel imports. That's probably bigger than all the rest. Maintaining an empire is ruinously expensive and transferring its costs to the wrong column in the ledger is fatal.

But more to the point:

The likelihood that coal burning is going to be brought under control anytime soon is disappearingly small.

So the question is, how do you deal with a technology that is A) the greatest environmental threat and B) taking off as the biggest source of energy in the gigapopulations of Asia as they invest their enormous trade surpluses in rapid, no-brainer industrialization?

A partial answer is given in this narrative of this spreadsheet, the public release of which was announced 2 days before the Borlaug Dialog last week.

Capturing and converting, on about 50,000mi^2 in the desert southwest, all of the CO2 effluent from US fossil fuel power plants into a billion tons of protein per year would eliminate the US's trade deficit with Asia and provide millions of immediate-hires in the US for reconstructing the US's coal fired power plants and converting isolated wind-energy into ammonia which gets around storage and transmission costs.

Undoubtedly, China and India would pursue similar technology themselves once demonstrated, and the world surplus of protein would be overwhelming but there are worse problems to consider.

James Bowery said at October 21, 2009 9:43 AM:


The correct link for the spreadsheet is:


The correct link for the narrative is:


(Hopefully Microsoft's skydrive will work better than Yahoo's groups files.)

Nick G said at October 21, 2009 12:41 PM:

This is a hard thing to analyze.

PPL would like loan guarantees for nuclear - wind doesn't get loan guarantees, nor does it get protection from liability like Price-Anderson (though, of course, only nuclear really needs it).

I have a slight preference for wind power vs nuclear, due to the opportunity costs of investing in something that we aren't really excited about in a lot of the countries of the world. In particular, with Iran moving towards nuclear weapons capability, we suddenly have most of the countries in the Middle East talking about needing a nuclear power program, with an obvious subtext of a weapons program. This is clearly not good.

We were willing to invade Iraq over WMD. Of course the Iraq war was mostly about oil, but WMD was considered a sufficient excuse, and that tells us something about the dangers of WMD: that invasion will cost over $2T.

Note to Randall: this is an edit of my previous comment, which can be deleted.

John Moore said at October 21, 2009 9:07 PM:
I have a slight preference for wind power vs nuclear, due to the opportunity costs of investing in something that we aren't really excited about in a lot of the countries of the world. In particular, with Iran moving towards nuclear weapons capability, we suddenly have most of the countries in the Middle East talking about needing a nuclear power program, with an obvious subtext of a weapons program. This is clearly not good.

This is not a reasonable argument against nuclear power. Iran will move forward, and other countries will or will not demand nuclear power, regardless of whether we choose nuclear power - which is vastly preferable to wind (unless you love having your horizons filled with ugly wind generators, your land criss-crossed with the service roads and power lines, and your birds dead). Furthermore, other countries are going to build lots of nukes. Even green Germany cancelled its plan to close its nuke plants. The US risks being left behind in electric power generation by our refusal to build nuclear plants.

Trent Telenko said at October 22, 2009 3:10 PM:


Drudge linked to a report today that oil hit $82 a barrel Wednesday night and is trading at $80.something today.

An earlier report you posted said that $80 a barrel was 4% GDP for the USA and that is energy-shock recession range.

Nick G said at October 23, 2009 11:04 AM:

Iran will move forward, and other countries will or will not demand nuclear power

I'm afraid you haven't been following the problem.

1st, Iran started moving to nuclear power under the Shah, more than 30 years ago, and that was purely for power generation. If wind/solar had been cheap and effective in 1970, he would have invested in them. Now, power generation is being used as a cover for weapons development. If wind/solar had been cheap and effective in 1970, we wouldn't be having this problem. Thus, my argument for the value of making wind/solar cheap and effective.

2nd, with Iran moving towards nuclear weapons capability, we suddenly have most of the countries in the Middle East talking about needing a nuclear power program, with an obvious subtext of a weapons program. This is real, and needs to be addressed.

Nuclear weapons proliferation is a serious problem - this hasn't changed because the US and Russia have reduced their weapons, and aimed their ICBMS away from each other (aiming them back, BTW, only takes 30 minutes...).

Randall Parker said at October 23, 2009 5:55 PM:


Good that you remember the $80 4% GDP point. I am watching the price of oil very carefully. Yes, we are now in the range where a stalling of the economy with a double dip recession becomes more probable. Nouriel Roubini is thinking similar thoughts but sees $100 as the point to worry about:

There are improving fundamentals. There is a global recovery. But that justifies oil going from $30 to maybe $50. I think the other $30 is all speculative demand feeding on itóspeculators and herding behavior. Last year, when oil was at $145, that killed the global economy. I worry that oil is going to go up above $100 for reasons that have nothing to do with the fundamentals of supply and demand. Oil at $100 would have the same negative effects on the global economy as oil did at $145 last year.

Last year, when oil was at $145, the global economy was still growing. Right now it has collapsed, and is recovering. Oil pushing above $100 would have nasty, negative real trade effects and real disposable-income effects on all importing countries: U.S., Europe, Japan, China, India; all the countries that were hit by the oil shock last year. So thatís an element that is in my view totally speculative, and dangerous to the global economy.

I think Roubini's worry price is too high. Though US demand has dropped so far that we are now getting only 52% of our oil from imports. So we might be able to handle a higher price point without as big an impact on our balance of trade. A larger percentage of our oil costs circulate internally than was previously the case.

Henry Groppe said in an interview a few months ago he expected $100 barrel oil by the end of the year followed by a substantial decline in demand (i.e. a recession). I worry when an oil industry analyst of his renown says things like this.

not anon or anonymous said at October 23, 2009 6:32 PM:

Trent, speculators may be hoping that oil near 80 USD/bbl will not stall the world economy. Also, OPEC supply restrictions and the weakening dollar explain a lot of the recent price increase.

anonyq said at October 24, 2009 3:34 AM:

Nike G,

It is more believable that the mullah's want nuclear technology for electricity than the Shah who was America's favorite military buyer.

not anon,

you are to focused on the USA. China economy is booming again and with it the World economy is out of recession

Nick G said at October 24, 2009 12:51 PM:


The Shah was certainly one of America's big military buyers - he did like those fighter jets. But...do you have a source for the idea that he was interested in nuclear weapons development?

And, I certainly do think that Iran wants nuclear technology primarily for electricity - I think it's clear that they also want a nuclear weapons option.

anonyq said at October 26, 2009 4:30 PM:

He wasn't a complete idiot and the West never had the best interest of Iran at its heart. (occupation, not selling a metal industry to Iran) and as added bonus the USSR. And we're not even talking about Little Buddha.

Nick G said at October 26, 2009 4:50 PM:


Could you elaborate about "occupation" and "Little Buddha"?

And again, do you have sources?

anonyq said at October 28, 2009 4:20 AM:

Iran was occupied during the second WWII by Britain and the Sovjets. Officially they joint the Allies but they decided to join them when Allied tanks were rolling through the streets of Tehran.

The Sovjet occupation only ended in 1948. I think that is because Stalin was a swell guy but others claim that is because the Americans threatened him with nukes.

Little Buddha is the code name of the India nuclear test for purely civilian uses in 1974. India is much less developed than Iran, at least in the eyes of the Persians.

Nick G said at October 28, 2009 10:03 AM:


It sounds like you agree that nuclear power in Iran and the ME has a strong weapons-development connection.

anonyq said at October 30, 2009 2:46 PM:

Short sentences are better understood then long sentences, may i add a correction ;)

It sounds like you agree that nuclear power has a strong weapons-development connection.

Problem is that they rally started to believe the propaganda for nuclear energy so closing the nuclear processing plants will be difficult outside of the simple fact that Iran needs nukes.

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