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Kansas corporation commission. Externalities in Benefit Cost Tests. EXTERNALITIES: DRAWING THE LINES. External to What? Changing Notions of Insult/Value Assessing Damages Assigning Costs. WATER. (LESS) WATER. AIR. CLIMATE. HEALTH. Concerns Asthma Stroke Heart Attack Lung Disease
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Kansas corporation commission Externalities in Benefit Cost Tests
EXTERNALITIES: DRAWING THE LINES • External to What? • Changing Notions of Insult/Value • Assessing Damages • Assigning Costs Adapted from Koomey and Krause, Lawrence Berkeley Laboratory, 1997
WATER Source: USGS Circular 1268, March 2004
(LESS) WATER Source: NOAA
AIR Source: Brian McLean, U.S. EPA, "Experience with Cap-and-Trade Programs"
CLIMATE Slide from Jon Anda, President of Environmental Markets Network
HEALTH • Concerns • Asthma • Stroke • Heart Attack • Lung Disease • Mercury Poisoning (especially in utero) • Insect-borne Disease (changing pathogen vectors) CDC, ALA, ACS, EPA, Harvard School of Public Health
WHAT’S THE RIGHT COST? IT’S NOT ZERO…
EXTERNAL TO WHAT? • STAGES OF ENERGY SOURCES (“INTERNAL”) • Exploration/Evaluation • Harvesting • Processing/Refining • Transportation/Distribution • Storage • Conversion (electric generation) • Marketing • End Use Holdren, John P., "Energy and Human Environment: The Generation and Definition of Environmental Problems," in Goodman, Kristoferson, Hollander: Academic Press.
EXTERNAL TO WHAT? • PHASES WITHIN A STAGE • Research • Development/Demonstration • Commercial Construction • Operation and Maintenance • Dismantling • Management of Long-Lived Wastes • Environmental Controls • Regulation and Monitoring Holdren, John P., "Energy and Human Environment: The Generation and Definition of Environmental Problems," in Goodman, Kristoferson, Hollander: Academic Press.
INSULTS • To Physical Health and Human Environment • Resources Used (land, water, energy) • Material Effluents (Nox, SO2, CO2) • Other Physical Transformations (dredging) • Socio-political Influences (politics, employment) Holdren, John P., "Energy and Human Environment: The Generation and Definition of Environmental Problems," in Goodman, Kristoferson, Hollander: Academic Press.
PATHWAYS • Convert Insults to Stresses • Media (air, water, ice, soil, rock, biota) • Processes (evaporation, diffusion, conduction) Holdren, John P., "Energy and Human Environment: The Generation and Definition of Environmental Problems," in Goodman, Kristoferson, Hollander: Academic Press.
STRESSES • Physical or Social Consequences of Insults • Magnitudes of Consequences • Temporal Distribution of Harm • Spatial Distribution of Harm • Coincidence of Risks and Benefits • Scaling (linear or nonlinear) • Resistance to Remedy • Irreversibility • Visibility of Harm Holdren, John P., "Energy and Human Environment: The Generation and Definition of Environmental Problems," in Goodman, Kristoferson, Hollander: Academic Press.
DOING THE MATH EC= EF x HR x VED EC = Externality Cost in ¢/kWh EF = Emission Factor, in lbs/Btu of fuel consumed HR = Heat Rate of power plant, in Btus/kWh VED = Value of Environmental Damage, in ¢/lb
PITFALLS IN ANALYSIS • Inconsistent Boundaries • Average v. Marginal Comparisons • Illusory Precision • Stochasticity • “What’s Countable v. What Counts”
IMPLICATIONS FOR BENEFIT/COST • Estimating value of externalities challenging and not strictly necessary • Societal Cost Test problematic • Total Resource Cost Test more conservative and, at this time, sensible • Many states have years of experience, results • Ratepayer Impact Measure: Would new generation withstand this test? • Emphasis on lower bills
EFFICIENCY AS A RESOURCE • Efficiency is properly treated AS new generation assuming: • Verified, permanent reductions • Performance standards • Reasonable savings estimates: Years of empirical savings data by program is available • Ratio of benefits:costs – 2:1 or even 3:1 has been achieved elsewhere • As long as efficiency is the least cost resource, it should be pursued
Perverse Incentives If we choose not to provide incentives for investor-owned utilities that, added to avoided costs, rival ROI for new generation, then we need to look closely at the following map:
Nancy Jackson • Executive Director • jackson@climateandenergy.org • (785) 331-8743 • www.climateandenergy.org