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The Hidden Costs of Energy Production—$120 Billion in 2005

A report recently released by the National Research Council (NRC) estimates that the hidden costs of energy production and use in 2005 were $120 billion. Known to economists as external costs, they include the economic impacts from human health effects, physical damages to structures, and reduction in grain crop harvests caused by air pollution. They are "hidden" because they are not reflected in the market prices of coal, oil, other energy sources, or the electricity and gasoline produced from them. Health damage from air pollution associated with electricity generation and motor vehicle transportation was found to be the largest single impact.

Power plant

Thomas McKone, a senior scientist in Lawrence Berkeley National Laboratory's Environmental Energy Technologies Division (EETD), and Adjunct Professor in the UC Berkeley School of Public Health, was one of 18 distinguished experts in public health, economics, and energy science who wrote the report. It was released by the NRC at the request of Congress. As a branch of the National Academies of Science, NRC organizes studies using the best available science by drawing on NAS membership and carefully selected experts.

Although these hidden costs are not reflected in the market cost of generating energy, they have an impact elsewhere, for example, as costs to treat diseases caused by criteria air pollutants (mainly sulfur oxides, nitrogen oxides, and particulate matter) and other products of fossil fuel combustion, costs of reduced grain harvests and timber yield, and costs of damage to buildings.

The report analyzed full life-cycle costs for energy production and use. This includes costs for producing fuel feedstocks (such as coal, natural gas, petroleum, and biomass), processing them into gasoline and other fuels, and transporting them. It also includes the health costs of generating electricity from these fuels and using them in transportation. The study even included impacts from manufacturing vehicles.

"The results described in this report are backed by strong technical analysis and a high degree of confidence by the committee," says McKone. "The committee's deliberations were marked by a desire to ensure that the report's results could be defended according to the best current science."

Health-Related Impacts Top the List

The majority of the effects are the result of human health impacts (including premature death) from air pollution and increased risks of diseases ranging from cancer to respiratory symptoms and other ailments such as asthma attacks.

Thomas McKone

Berkeley Lab scientist Thomas McKone was one of 18 distinguished experts in public health, economics, and energy science co-authoring an NAS report on the hidden costs of energy production. (Photo by Roy Kaltschmidt, Berkeley Lab Public Affairs)

The committee provided an estimate of the external costs of fossil fuel use in 2005, as well as, where possible, an estimate of these costs in 2030. To analyze the externality costs of fossil power plants, the committee evaluated impacts from 406 coal-burning plants in the United States, which account for 95 percent of U.S. emissions. It analyzed the effects and estimated the emissions, the exposures resulting from these emissions, and the resulting mortality and morbidity (that is, the number of people with reduced life spans and symptoms that could be expected from these emissions). They did the same for natural gas-burning plants, nuclear plants, and renewable generating facilities. They also analyzed the same parameters resulting from the extraction of petroleum, refinement into gasoline, and combustion of gasoline in vehicular transport. They expressed their results as external damages in dollars per vehicle mile traveled.

The report estimated cost ranges for greenhouse gas (GHG) emissions and addressed those separately, because of uncertainties in the kinds and magnitudes of impacts from climate change.

Coal accounts for about half the electricity produced in the United States. According to the report, in 2005 the total annual external damages from sulfur dioxide, nitrogen oxides, and particulate matter created by burning coal at the 406 coal-fired power plants that 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.

Damages attributable to natural gas were smaller. The report stated that the burning of natural gas generated far less damage than coal. 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. There was again a vast difference among power plants. Half of them account for only 4 percent of the total nonclimate damages from air pollution, while 10 percent produce 65 percent of the damages.

Greenhouse Gases

The committee estimated the external costs from the emissions of GHGs, but instead of providing a single target figure for these emissions, it provided a range of possible costs. The reason, according to McKone, was that because knowledge about climate change is evolving rapidly, the estimates of the effects of GHGs on climate change were more uncertain, and depended on which assumptions were made. The committee found that marginal damage estimates for emissions in 2030 could be as much as 50% to 80% larger than present-day estimate ranges.

"Although it was not possible to accrue greenhouse gas damages to a particular year they way it was done for damages from other air pollutants, the damages from GHGs appear to be on the same order of magnitude as those for human health," says McKone.

Transportation Impacts Similar Across Fuels and Technologies

"In 2005 motor vehicles produced $56 billion in health and other nonclimate-related damages. Damages per vehicle mile traveled were remarkably similar among various combinations of fuels and technologies—the range was 1.2 cents to about 1.7 cents per mile traveled—and it is important to be cautious in interpreting small differences," the report says.

An interesting result of the transportation analysis is that the damages from all types of fuel were similar, whether for gasoline-powered cars, or plug-in hybrid electric vehicles (PHEVs), which will use a combination of gasoline and electricity stored in batteries. About 50 percent of the electrical power that would recharge PHEVs on the U.S. electricity grid would be from coal-powered generation. Without changing the power mix that supplies electricity to the grid, the external costs would be roughly the same, whether the energy source were just gasoline or gasoline plus the current U.S. grid's fuel mix.

Biofuels from corn-based ethanol were no better than gasoline because of the large power input required to produce it, but biofuels derived from grass or wood feedstocks show the promise of reduced health costs and significantly lower carbon emissions per vehicle mile. Although the committee was able to provide impacts on a per-vehicle mile traveled for the year 2005, it concluded that it could not provide a credible prediction for what the transportation vehicle mix would look like in 2030, so it did not provide a scenario for the future costs of transportation fuels.

McKone notes that the damage estimates contained in the report are conservative, meaning the damages are probably higher. The committee focused on generating estimates that are scientifically rigorous and possible to accrue to a specific year. Where this was not possible to calculate, the committee provided ranges and left them out of the estimate provided for 2005.

The report is titled Hidden Costs of Energy: Unpriced Consequences of Energy Production and Use.

— Allan Chen

For more information, contact:

  • Thomas McKone
  • (510) 486-6163

A National Academies press release about the report.

More on Thomas McKone's research:

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