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Evaluating Externalities in Benefit-Cost Tests

Discover the complexities of externalities in benefit-cost tests, exploring the impact on energy, environment, health, and society. Learn to assess damages, assign costs, and determine the right ecological cost. Find insights on efficiency as a crucial resource for sustainable decision-making. Consider the implications for benefit/cost analysis and the significance of societal and economic changes. Address perverse incentives and the role of public benefit funds in shaping our energy future.

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Evaluating Externalities in Benefit-Cost Tests

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  1. Kansas corporation commission Externalities in Benefit Cost Tests

  2. 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

  3. COSTS OF ENERGY MARKET SOCIETY Exploration/Evaluation Harvesting Processing/Refining Transport/Distribution Storage Conversion Marketing End Use Land/Air/Water Used Effluents Human Health Physical Transformations Socio-political Influences (politics, employment)

  4. WATER Source: USGS Circular 1268, March 2004

  5. (LESS) WATER Source: NOAA

  6. AIR Source: Brian McLean, U.S. EPA, "Experience with Cap-and-Trade Programs"

  7. CLIMATE Slide from Jon Anda, President of Environmental Markets Network

  8. 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

  9. WHAT’S THE RIGHT COST? IT’S NOT ZERO…

  10. 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

  11. CONSIDERATIONS • 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.

  12. EFFICIENCY AS A RESOURCE Efficiency makes economic sense now, whether or not “externalities” are considered.

  13. Cost of New Electricity Resources Source: ACEEE 2008, EPRI 2006 & UCS 2008

  14. EFFICIENCY AS A RESOURCE • Efficiency AS “New” Generation • Verified, Permanent Reductions • Performance Standards (1% +) • Least Cost Resource

  15. IMPLICATIONS FOR BENEFIT/COST • Changes in Economy & Society Swift and Dramatic • Flexibility, Not Stasis, Makes Sense • Total Resource Cost Test Preferable • Ratepayer Impact Measure: Would new generation withstand this test? • Emphasis on Lower Bills

  16. 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:

  17. STATES WITH PUBLIC BENEFIT FUNDS

  18. Nancy Jackson • Executive Director • jackson@climateandenergy.org • (785) 331-8743 • www.climateandenergy.org

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