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Apples-to-Apples – Carbon vs. Renewables

Apples-to-Apples – Carbon vs. Renewables

| On 18, Aug 2013

The Cost of Externalities

This has historically been a mystery to EGW.  Not because it is unfathomable, but instead simply because we haven’t taken the time to look at the numbers.  We all know intuitively that their are “socialized” costs of digging, drilling, transporting, combusting and disposing of waste products associated with the use of carbon-based energy like oil, coal and gas.  So instead of researching it in perpetuity and in silence, we’ve decided to just admit our ignorance and take our first public step in “coming out” as not yet being able to fully quantify, or make holistic sense of others’ attempts to quantify the economics of externalities with respect to energy extraction, generation, distribution and consumption.

I mean, it’s a *very* complex challenge.  Yet it’s critical in arriving at apples-to-apples comparisons between the economics of carbon-energy and renewables.

Real or Imagined?

Externalities are real costs, and they are not included in the oft-quote “private costs” at which companies offer energy to consumers and businesses.  Instead, those “external costs” are born by the community instead of being paid for by the companies that incurred them.  This dynamics is not unique to energy companies.  These kinds of cost externalities range from the trash created from consumer goods packaging, to the disposal costs of old electronics, or the health-related costs of fast foods, alcohol or tobacco.

Energy is not exempt from it.  In fact, it is not debated, even by fossil fuel companies, that extraction and combustion are dirty and resource intensive.

Quantifying Externalities

Paul Epstein, director of Harvard Medical School Center for Health and the Global Environment, has examined the health and environmental impacts of *just* coal, including: mining, transportation, combustion in power plants and the impact of coal’s waste stream. He found that the “life cycle effects of coal and its waste cost the American public $333 billion to over $500 billion dollars annually”. These are costs the coal industry is not paying and which fall to the community in general. Eliminating that subsidy would dramatically increase the price of coal-fired electricity.

The conclusion of Epstein’s report:

Our comprehensive review finds that the best estimate for the total economically quantifiable costs, based on a conservative weighting of many of the study findings, amount to some $345.3 billion, adding close to 17.8¢ /kWh of electricity generated from coal. The low estimate is $175 billion, or over 9¢ /kWh, while the true monetizable costs could be as much as the upper bounds of $523.3 billion, adding close to 26.89¢ /kWh. These and the more difficult to quantify externalities are borne by the general public.

According to Harvard Medical School, we should be adding between 9¢ and 27¢ of quantifiable, real externalized costs to whatever private cost per kWh is quoted by coal burning power plants.  A separate MIT study on the True Cost of Energy is more conservative, and less comprehensive, but notable nonetheless.

When private costs alone are considered, existing coal power plants appear to be a great deal. These plants account for roughly 45 percent of the electricity in the United States, and they do so at an average price of 3.2¢ per kWh. This appears to be a bargain, but the true costs are much higher–in fact, they are 170 percent higher. Each kWh of coal-generated electricity comes with an additional 5.6¢ per kWh of damages to our well-being, from a combined 3.4¢ per kWh of non-climate-change-related damages (primarily health-related) and 2.2¢ per kWh of climate change- related damages. Although these costs are not listed on our monthly utility bills, they are nevertheless real. They show up in shorter life spans, higher health care bills, and a changing climate that poses risks to our way of life.

Harvard cites 6¢ per KWh in “private cost” and their best estimate of 17¢ per KWh in additional “external costs”, bringing the total true cost to approximately 4x the commonly quoted private cost.  MIT cites 3.2¢ private cost and another 5.6¢ in additional external costs, so around 3x the private costs, all in.

3x… 4x…  we’re not talking 10% or even 50% more.  What both reports do agree on is that we’re talking true costs of coal for energy in the hundreds of percents more expensive than the widely reported and highly misleading “private costs”.

Whether you believe MIT’s numbers, or you believe Harvard Medical School’s numbers, I think all can agree there are indeed external costs associated with fossil fuel use that are diffused across society, not borne by the carbon company, and that don’t show up in the electric bill or at the gas pump, or in comparisons to rapidly advancing renewable energy technologies.  Though they should.

While it’s difficult to deterministically arrive at a single number that we can all agree on for coal, in particular, it’s safe to take multiple sources and bracket it.  It passes the test of reasonableness that the true cost of coal is at-least double the rates quoted by coal power generation plants, and not going down.  This as renewables are dropping in cost exponentially.  While renewables also have external costs, which we’ll delve into in later articles, we’ll see they do not come anywhere close to those of fossil fuels.

It’s disingenuous at best, and lying at worst to compare carbon energy to renewable energy economics on a private-cost to private-cost basis.  Apples to apples, folks.

 

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