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Winter/Spring 2010 Vol. 10 Number 1

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©Joe Baker/Stock Illustration SourceShedding Light on Energy's Hidden Costs

Given fluctuating -- and often escalating -- energy prices in recent years, consumers may be used to scowling at their home heating bills or prices at the gas pump. But however high the numbers may be, they are lower than they would be if all of energy's true costs were reflected, such as the harm inflicted on our health by the pollution generated by burning coal or gasoline. These kinds of damages -- the ones not reflected in market prices -- are the "hidden costs" of energy. A new report from the National Research Council aims to bring these costs into view so that policymakers, utilities, and consumers can see the full picture when making energy choices.

When possible, the report attaches a price tag to the damages. Damage to human health from burning coal for electricity, for example, totaled about $62 billion in 2005. Driving motor vehicles produced $56 billion in health and other damages. And using natural gas to heat our homes, workplaces, and factories resulted in about $1.4 billion in harm. All told, the damages from U.S. energy use that the study committee was able to quantify added up to an estimated $120 billion in 2005.

Not included in those dollar figures was harm from climate change, which the committee found impossible to estimate as a single number because of the wide-ranging possibilities for the damages. Instead, it estimated ranges for the climate-related damages; for example, the cost of those that result from burning coal to generate electricity range from about 0.1 cents to 10 cents per kilowatt-hour. Whatever the exact price of the damage, the report notes, the harm caused by each ton of CO2 emissions will be far worse in 2030 than it is now, even if the total amount of CO2 emitted each year remains steady.

©Roy Scott/Stock Illustration SourceThe study turned up some surprises. For example, the committee found that almost half the damages to human health and other nonclimate-related harms caused by coal-fired power plants could be traced to a relatively small number of plants -- 10 percent of them. And electric vehicles and plug-in hybrids -- generally considered environmental favorites -- were estimated to have greater damages than many other vehicle technologies because the electricity used to power them still comes mainly from burning fossil fuels; those costs climb even further because energy is also used to create the batteries and electric motors. Corn-based ethanol also had higher damages than many other types of vehicle fuel because of the energy used to produce the corn and convert it to fuel.

How should the nation lower these hidden costs? While the committee was not asked to recommend specific approaches, it did note that a case can be made for government interventions, such as regulations, taxes, or tradable permits, to address such damages, given the market's failure to do so. The most efficient policies to tackle hidden costs are likely to be targeted at the damages themselves, not the energy use -- for example, by taxing the sulfur dioxide emissions from power plants rather than the electricity generated by them.

Fully implementing federal rules for diesel would result in a sizeable decrease in nonclimate-related damages from diesel vehicles by 2030, the report adds. Other initiatives to reduce emissions, improve energy efficiency, or shift to a cleaner mix of electricity generation -- one involving renewables, natural gas, and nuclear -- could also lower damages, including those from electric and plug-in hybrid cars.
Sara Frueh

Hidden Costs of Energy: Unpriced Consequences of Energy Production and Use. Committee on Health, Environmental, and Other External Costs and Benefits of Energy Production and Consumption; Board on Environmental Studies and Toxicology, Division on Earth and Life Studies; Board on Energy and Environmental Systems, Division on Engineering and Physical Sciences; and Board on Science, Technology, and Economic Policy, Division on Policy and Global Affairs (2010, approx. 350 pp.; ISBN 0-309-14636-4; available from the National Academies Press, tel. 1-800-624-6242; $54.00 plus $5.00 shipping for single copies).

The committee was chaired by Jared L. Cohon, president, Carnegie Mellon University, Pittsburgh. The study was funded by the U.S. Department of the Treasury.

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Copyright 2010 by the National Academy of Sciences