Studies of the Environmental Costs of Electricity · Cost estimates can be made by either: 1) evaluat-ing the health and environmental impacts from those emissions and estimating

Studies of the Environmental Costs ofElectricity

September 1994

OTA-BP-ETI-134NTIS order #PB95-109641

GPO stock #052-003-01393-2

Recommended Citation: U.S. Congress, Office of Technology Assessment, Studies ofthe Environmental Costs of Electricity, OTA–ETI–134 (Washington, DC: U.S.Government Printing Office, September 1994).

Foreword

s tudies of the Environmental Costs of Electricity examines studiesthat assign monetary value to the environmental effects of energytechnologies. Quantitative analysis of environmental effects hasbeen an important feature of energy policy for several decades, and

growing numbers of studies attempt to integrate these analyses into anoverall framework that allows comparison of the environmental effectsof different technologies for generating electricity.

Because of the large size and scope of environmental cost studies,however, they necessarily involve a large number of assumptions. Theseassumptions have been the focus of contentious debate in the analyticaland policy communities. While changing a study’s assumptions can pro-foundly affect its results, there is currently no agreement on the most ap-propriate set of assumptions. This does not imply that all assumptionsare equally valid, but indicates that assumptions often reflect deeply heldvalues of participants in policy debates.

This report was prepared in response to a request by the House Com-mittee on Science, Space, and Technology. The report examines a set ofenvironmental cost studies, compares and contrasts their methods andassumptions, and discusses how they could be made more useful to fed-eral policy makers. In contrast to other studies in this area, OTA’S reportexplores the close ties between values, assumptions, and quantitative re-sults and the implications of these ties for policymaking.

OTA appreciates the participation of many individuals without whosehelp this report would not have been possible. OTA received generousassistance from workshop participants and reviewers who offered valu-able information and comments. The contents of the report itself, how-ever, are the sole responsibility of OTA.

Director

. . .Ill

Preject Staff

Peter BlairAssistant DirectorOTA Industry, Commerce, and

International Security Division

Emilia L. GovanProgram DirectorOTA Energy, Transportation, and

Infrastructure Program

Samuel F. BaldwinProject DirectorOTA Renewable Energy Project

David JensenProject Director

ADMINISTRATIVE STAFF

Lillian ChapmanDivision Administrator

Marsha FennOffice Administrator

Gay JacksonPC Specialist

Tina AikensAdministrative Secretary

Iv

Alan BasalaU.S. Environmental ProtectionAgency

Thomas BathNational Renewable Energy

Laboratory

David BoomsmaU.S. Department of Energy

Shepard BuchananBonneville Power Administration

Dallas BurtrawResources for the Future

Paul CarrierU.S. Department of Energy

Emily CaverhillResource Insight, Inc.

Mark CooperConsumer Energy Council

of America

David DawsonForest Policy Consultant

Jonathan KoomeyLawrence Berkeley Laboratory

John HughesElectric Consumers Resource

Council

Bruce HumphreyEdison Electric Institute

James KennedyU.S. General Accounting Office

John KennedyAllied Signal Inc.

Jan McFarlandU.S. Environmental Protection

Agency

Rick MorganU.S. Environmental Protection

Agency

Victor NiemeyerElectric Power Research Institute

Richard NorgaardUniversity of California—

Berkeley

Dale W. OsbornKenetech

Robert D. RoweRCG/Hagler, Bailly, Inc.

Reviewers

Mark SagoffUniversity of Maryland

Robert L. San MartinU.S. Department of Energy

Kari SmithNatural Resources Defense

Council

Eric Von MagnusMaine Public Utilities

Commission

Kris WernstedtResources for the Future

Irvin L. (Jack) WhiteBattelle Pacific Northwest

Laboratories

OTA REVIEWERS

Mark BoroushRobert FriedmanGregory EyringGretchen KolsrudTodd LaPorteKaren LarsenDalton PaxmanSteve PlotkinRobin RoyJoanne SederMatthew Weinberg

Robert W. FriResources for the Future

v

workshop Participants

Irvin L. (Jack) White(Chairman)Battelle Pacific Northwest

Laboratories

Steve BernowTellus Institute

Ashley BrownRCG/Hagler, Bailly, Inc.

Dallas BurtrawResources for the Future

Robert CostanzaUniversity of Maryland

Bruce HumphreyEdison Electric Institute

Alan KrupnickResources for the Future

Daniel LashofNatural Resources Defense

Council

Richard NorgaardUniversity of California –

Berkeley

Richard OttingerPace University

Mark SagoffUniversity of Maryland

vi

1

2

3

4

5

Summary 1Studies of Environmental Costs 3Methods for Valuing Environmental Costs 3Assumptions in Environmental Cost Studies 5Roles for Environmental Cost Studies in

Policymaking 6

Studies of Environmental Costs 9The Purpose and Structure of Environmental Cost

Studies 10Selected Studies 13Comparing Studies 31

Methods for Valuing Environmental Costs 37Market Valuation 38Hedonic Valuation 38Contingent Valuation 39Control Cost Valuation 42Mitigation Cost Valuation 42Conclusion 43

Assumptions in Environmental CostStudies 45Issues and Underlying Assumptions 47Frameworks 62

Roles for Environmental Cost Studies inPolicymaking 67Current Laws and Regulations 67Making Studies More Useful in Federal

Policymaking 70

INDEX 75

vii

c ontents

I

L I

I

L J

Summary

In the past two decades, studies of energy technologies in-creasingly have focused on quantifying environmental ef-fects. In particular, many studies have attempted to estimatethe environmental cost of different electricity generating

technologies —the monetary value of the environmental ef-fects—so that environmental concerns can be incorporated moreeasily into public and private decisionmaking.

These environmental cost studies have attracted the attentionof a variety of legislators and regulators. Although few measureshave been enacted with the intent of directly passing environmen-tal costs onto consumers, several state and federal actions requirethat these costs be estimated and considered by utilities. For ex-ample, 29 states require utilities to consider environmental costsin some way when they choose among electricity supply options,and many other states are considering such measures. Several fed-eral statutes also mandate that utilities or agencies estimate envi-ronmental costs.

Credible and accurate information about environmental costscould be a critical component of future state and federal policies.Several new studies will be released within the next year (seechapter 2 for details), and these new studies, as well as previouslycompleted studies, could help federal policy makers make choicesabout the use of current electricity technologies and the level ofsupport warranted for new or improved technologies. They alsocould allow quantification of the potential benefits associatedwith electricity technologies that have fewer environmental im-pacts (e.g., solar and wind energy) and technologies that reduceenergy use (e.g., energy-efficient appliances). This is particularlyimportant given that many of these alternative technologies cur-rently cost more than traditional technologies. 11

2 I Studies of the Environmental Costs of Electricity

This report examines the methodology, findings, and implications of studies that estimate the envi-ronmental costs of electricity production. Specifically, it:

■

m

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●

explains the principles behind estimates of environmental costs and the terms used to discuss suchestimates,summarizes and compares existing estimates of environmental costs and the methods of arriving atthose estimates,characterizes and analyzes the reasons for differences in estimates, particularly the assumptions andvalues that underlie different estimates, and

discusses challenges associated with using current estimates in policymaking.

In contrast to many other reports on environmental cost studies, this report focuses on the studies’assumptions and values. The House Committee on Science, Space, and Technology, which requestedthis report, asked OTA to examine the fundamental assumptions and values that underlie debates overenvironmental costs and to explore their implications for policymaking.

The study focuses on environmental cost estimates for electricity generation because this area hasproduced substantial regulatory and legislative activity. It does not consider other types of costs (e.g.,government subsidies and economic effects), nor does it consider other sectors of the economy con-cerned with energy (e.g., transportation).l

OTA did not attempt to make its own estimates of the environmental costs of electricity. The study’srequest explicitly excluded such estimates, and OTA finds that generally accepted estimates would bedifficult, if not impossible, to achieve at this time.

In addition, this study does not discuss specific policy instruments. The use of specific policy instru-ments is largely separate from the estimation of environmental costs. Another OTA study is currentlyreviewing a variety of new approaches to environmental regulation.2

Printing Office, forthcoming),

SOURCE Office of Technology Assessment, 1994.

The Office of Technology Assessment (OTA) of electricity, or on methodologies for makinghas examined several studies of the environmentalcosts of electricity (see box l-l). This report re-views the studies’ results, methods, and assump-tions in an effort to determine whether there aregenerally accepted approaches to estimating envi-ronmental costs and whether the studies have con-verged upon similar conclusions. The report doesnot provide a detailed discussion of how the find-ings of these studies might be incorporated intopolicy. Where policy relevance is discussed, it isprimarily from a federal perspective.

OTA concludes that no clear consensus existson quantitative estimates of environmental costs

those estimates. The methods of these studies, andthe estimates themselves, vary widely. The differ-ing methods and results have produced a conten-tious technical debate among analysts andpolicymakers who wish to use the results of envi-ronmental cost studies. Many of these differencescan be addressed through further research andanalysis. Some critical disagreements over meth-odology, however, mask deeper disputes over val-ues, basic policy goals, and the intended role ofenvironmental cost studies. It is unlikely thatthese disputes can be resolved by technical analy-sis or scientific research. Instead, these disagree-

Chapter 1 Summary I 3

ments are more likely to be successfully addressedthrough public debates in the policy arena.

This report summarizes several existing andongoing studies, discusses several major method-ological disputes and the assumptions underlyingthem, and attempts to characterize the differentframeworks of assumptions. Understanding theseframeworks can help policymakers understandboth current and future studies, avoid unintention-ally accepting the embedded assumptions of stud-ies, and make the best use of the information thestudies provide.

STUDIES OF ENVIRONMENTAL COSTSEnvironmental cost studies usually compare theeffects of several different energy sources (e.g.,coal, oil, nuclear, and solar). The studies catalogthe emissions from power plants (e.g., sulfur diox-ide (S02) and carbon dioxide (C02) and then esti-mate the costs associated with those emissions.Cost estimates can be made by either: 1) evaluat-ing the health and environmental impacts fromthose emissions and estimating the monetary costof those impacts or 2) examining the cost of cur-rently mandated measures to control those emis-sions or to mitigate their effects. To estimate anenergy source’s total environmental cost, eachstudy adds together the damages from all environ-mental effects attributed to a particular source.

OTA examined eight environmental cost stud-ies for this report (see table 1-1 ). The studies wereselected based on their comprehensiveness, theirinfluence, and the extent of their methodologicaldiscussion. Two of the studies (one sponsored bythe U.S. Department of Energy and one sponsoredby New York State) are in progress and are ex-pected to be completed by the end of 1994. The sixother studies had been completed by 1991. Thereare several other recent and ongoing studies inaddition to those that OTA examined in detail forthis request. All of these studies are discussed inchapter 2.

On the basis of a review of the methodologyand estimates of these eight studies, OTA foundthat:

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Cost estimates are difficult to combine orcompare. Studies use very different methods ofestimating, categorizing, and reporting results.These methods are so different that in-depthcomparison of quantitative results is extremelydifficult. In general, only broad comparisonsare possible.Cost estimates are variable and uncertain. Esti-mates made by different studies vary greatly.For example, cost estimates for the same ener-gy source can vary between nearly zero and avalue greater than current electricity prices. Allstudies note that their results contain substan-tial uncertainty. Not all studies include explicitestimates of this uncertainty, but when uncer-tainty ranges are given, they are often as largeor larger than the estimates themselves. At leastone category of costs, those associated withglobal warming, is potentially large, but thecosts are impossible to estimate with certainty.A single category of effects often dominates thecost estimates. The studies examined by OTAmade more than 50 separate estimates of the en-vironmental costs associated with particularenergy sources. In more than 80 percent ofthese estimates, a single category of damagesaccounted for the majority of the cost estimate.In one study, for example, damages associatedwith S02 accounted for more than 60 percent ofthe total damages associated with one type ofcoal-fired power plant. This observation mayfacilitate the use of these studies for policymak-ing because dominant effects may point toareas where additional legislative or regulatoryattention is warranted.

METHODS FOR VALUINGENVIRONMENTAL COSTSValuation is the process of taking an environmen-tal impact (e.g., number of deaths or acres of dam-aged forest) and estimating a monetary value forthat impact. Other phases of environmental coststudies besides valuation (e.g., estimating long-term health and ecological effects) are importantand are often the focus of debate, but studiesinvolving these other phases have been part of


Authors Sponsors Title Date

Resources for the Future; OakRidge National Laboratories

U.S. Department of Energy;Commission of the EuropeanCommunities

External Costs andBenefits of FuelCycles

(forthcoming)

(forthcoming)RCG/Hagler, Bailly, Inc. New York State Energy Research andDevelopment Authority;Empire State Electric EnergyResearch Corp.;Electric Power Research Institute

New York StateEnvironmentalExternalities CostStudy

Richard Ottinger et al. (PaceUniversity Center forEnvironmental Legal Studies)

New York State Energy Research andDevelopment Authority;U.S. Department of Energy

Environmental Costsof Electricity

1990

1990Stephen Bernow et al. (TellusInstitute)

Valuation ofEnvironmentalExternalities forEnergy Planning andOperations

Several state energy agencies andutility regulatory bodies (Vermont,Massachusetts, California, andRhode Island)

Paul Chernick and EmilyCaverhill (PLC, Inc.)

Boston Gas Co.; filed with theMassachusetts Department of PublicUtilities

The Valuation ofExternalities fromEnergy Production,Delivery, and Use

1989

Social Costs ofEnergy Consumption

Olav Hohmeyer(Fraunhofer-lnstitute forSystems and InnovationResearch, Germany)

Commission of the EuropeanCommunities

1988

ECO Northwest; BiosystemsAnalysis; Nero and Associates

Bonneville Power Administration;U.S. Department of Energy

(Several, see chapter2 for details)

1983-1987

1982Michael Shuman and RalphCavanagh (Natural ResourcesDefense Council)

Northwest Conservation ActCoalition

A Model ElectricPower andConservation Plan forthe Pacific Northwest:Environmental Costs

NOTE Sponsors do not necessarily endorse or agree with a study’s findings, particularly in the case of government agencies. Several other

studies exist, See chapter 2 for additional details.

SOURCE Off Ice of Technology Assessment, 1994

legislative policy debates for some time. In con- ation of environmental factors by governmenttrast, valuation is relatively new to the policy are- regulators. Mitigation cost valuution examinesna and deserves special attention. the cost of preventing or repairing environmental

At least five valuation methods are used in cur- damages. Details of these methods can be foundrent environmental cost studies. Market valuation in chapter 3.uses existing market prices to estimate damages. Disputes over valuation methods mostly centerContingent valuation elicits estimates from con- around the utility and accuracy of different typessumers by the use of survey techniques. Hedonic of evidence. For example, some methods (e.g.,valuation examines existing market prices to de- market and hedonic valuation) draw their in-tect implicit valuation of environmental factors by formation from consumer choices, whereas otherconsumers. Control cost valuation examines ex- methods draw information from the decisions ofisting regulatory decisions to detect implicit valu- elected and appointed government officials (e.g.,

control cost valuation). Analysts and others dis-agree strongly about the proper method of esti-mating environmental costs and about whethersuch valuation is even useful.

ASSUMPTIONS IN ENVIRONMENTALCOST STUDIESTo make quantitative estimates of environmentalcosts, studies must make a large number of as-sumptions. Some of these assumptions involvevaluation methods, others involve how to handleuncertainty or whether currently regulated effectsshould be included in cost estimates. Different as-sumptions can include or exclude whole classes ofeffects, and can lead to dramatically different nu-merical estimates for the effects that are included.

Environmental cost studies are not the onlytype of study in which assumptions affect results;all quantitative analyses are conducted within ageneral framework of assumptions and values.Environmental cost studies, however, include aparticularly large number of assumptions. At-tempting to estimate environmental costs neces-sarily uses the results of many other, more limited,component studies—for example, studies ofemissions generation, transport, and deposition;environmental impacts; risk assessment; and eco-nomic valuation. Environmental cost studies in-corporate the strengths and weaknesses of thesecomponent studies. As a result, environmentalcost studies face an array of vexing problems thathave emerged from the past two decades of re-search in environmental science, social science,engineering, and economics. They generally re-quire a larger number of assumptions, containgreater uncertainties in their results, and engendermore controversy than do studies of a more lim-ited scope.

There are no obvious criteria to use in selectinga set of best assumptions for all purposes or for allpolicy makers. Specific assumptions draw criti-cism and support from different analysts, but mostare not obviously flawed. Instead, these assump-tions embody different goals and values that maybe more or less appropriate to different purposesand policy makers. Because no single set of as-

sumptions matchesparties, consensus

Chapter 1

the goals andestimates of

costs are not possible.The impact of the assumptions

Summary I 5

values of mostenvironmental

and values im-plicit in different estimates is large enough thatisolated quantitative estimates of environmentalcosts are nearly meaningless. Such estimates be-come meaningful only in the context of a study’sassumptions and of the environmental effects thatare included. This conclusion indicates that iso-lated quantitative estimates of environmental coststudies should not be presented as the final resultsof a study. This practice improperly focuses atten-tion only on the numerical results, rather than onexplaining those results in the context of thestudy’s assumptions.

Investigating the assumptions that underliethese different estimates can help explain why theestimates differ and can also help to clarify broad-er debates over the environmental costs of energy.On the basis of the methodology of environmentalcost studies, position papers by stakeholders, anda workshop convened for this study, OTA identi-fied several frameworks of goals and values (seechapter 4 for details). These frameworks can becharacterized by the answers to fundamental ques-tions such as:

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What is the goal of environmental policy? Envi-ronmental cost studies are most frequently as-sociated with the goal of economic efficiency.Other implicit and explicit goals assumed inenvironmental cost debates include equity, sus-tainability, and protection of health and safety.What is the role of environmental cost studiesin energy policy? These studies can be used toquantify economic corrections to energy mar-kets, facilitate compensation for environmentaldamages, or guide government regulation toprotect health or encourage sustainability.How is value determined? Valuation can bebased on consumers acting in markets, legisla-tors and regulators acting in political systems,scientists studying ecological systems, or gov-ernment officials acting in legal settings.


Different answers to these questions lead to dif-ferent assumptions about what effects to include,how to value those effects, and how to handle un-certainty. These assumptions, in turn, can lead towidely divergent estimates of the environmentalcosts of electricity generation. All studies makethese assumptions based on frameworks of goalsand values, and these frameworks are often the fo-cus of substantial disagreement. Rather than help-ing to resolve political and social debates, currentenvironmental cost studies often reflect differentpositions in these debates.

ROLES FOR ENVIRONMENTAL COSTSTUDIES IN POLICYMAKINGGiven that assumptions and values are so impor-tant to the methods and results of environmentalcost studies, what role can such studies serve indeveloping federal policy?

| Current Laws and RegulationsSeveral federal laws and regulations already re-quire some examination of environmental cost.For example, consideration of environmental costis required under the Pacific Northwest ElectricPower Planning and Conservation Act of 1980(Public Law 96-501). The Clean Air Act Amend-ments of 1990 (Public Law 101-549) require theEnvironmental Protection Agency (EPA) Admin-istrator to conduct a comprehensive analysis ofthe effects of the act on the public health, econ-omy, and environment of the United States. TheEnergy Policy Act of 1992 (Public Law 102-486)requires the Secretary of Energy to develop aleast-cost national energy strategy that considersthe economic, energy, environmental, and socialcosts of various energy technologies.

Some pending federal legislation has a connec-tion to environmental cost issues. For example,much of the debate over whether to elevate theEPA to cabinet-level status has concerned whetherthe new agency would be required to performcost-benefit analyses of proposed regulations.Some EPA regulations directly address the envi-ronmental effects of energy, and environmentalcost studies hold the promise of helping to quanti-

fy regulatory benefits. EPA conceivably couldconduct or use many different types of studies ofcosts and benefits. Some of these studies lack thecomplexity of studies that assess the environmen-tal cost of energy, but the difficulties, challenges,and opportunities presented by environmentalcost studies may provide useful analogs for broad-er questions about the quantitative study of EPAregulations.

In addition to federal policies, many state regu-latory commissions require some quantitative orqualitative use of environmental cost estimates.Nineteen states require utilities to consider quanti-tative estimates of environmental costs. Require-ments in another 10 states and the District ofColumbia mandate the use of qualitative criteriathat attempt to account for environmental costs.

| Making Studies More Useful to FederalPolicymakers

For federal policymakers, use of environmentalcost studies offers both pitfalls and opportunities.Pitfalls include the unknowing acceptance of as-sumptions and values embedded within the stud-ies’ quantitative analysis. Opportunities includeusing environmental cost studies as a way to ex-plore the importance of specific assumptions andas a way to gain useful insights into setting envi-ronmental priorities.

Moving Beyond EvaluationIn one way, at least, federal policymakers mayfind a mismatch between their own goals andthose embodied in currently available studies ofthe environmental costs of electricity. Many of theassumptions in currently available studies stemfrom an emphasis on the goals of state utility com-missions. In particular, these studies often assumethat the important decisions involve choosingamong available electricity generating technolo-gies, rather than attempting to alter the relevantenvironmental effects of those technologies. Fed-eral policy often involves the latter, through lawsand regulations concerning pollution controltechnologies, mining and transportation safety,waste disposal, and impact mitigation.

Chapter 1 Summary I 7

One consequence of the existing focus onchoosing among different generating technolo-gies is that studies often report aggregate valuesthat indicate total environmental costs. Such re-sults are useful to state regulatory commissionsthat wish to affect how utilities add new generat-ing capacity. However, they are of limited use tofederal legislators and regulators, who have a wid-er array of pol icy measures available. If studies arenot relevant to the design and management ofelectricity generating technologies, then federalpolicy makers may not be able to use the studies ef-fectively or they may choose to ignore them en-tirely.

In contrast, if environmental cost studies pre-sent disaggregated results, then they could provemore useful to federal policy makers. They couldassist legislators and regulators with setting prio-rities and designing efficient and effective regula-tory programs. For example, if future studiesanalyze and report the relative importance of dif-ferent effects as prominently as current studies re-port total environmental costs, then future studiescould help support priority-setting activities inboth regulatory programs and research and devel-opment activities.

Emphasizing Nonquantitative ResultsEnvironmental cost studies often focus on whatappears to be the “bottom line’' —the monetaryvalue of env ironmental effects. In many cases, thisis the most speculative and controversial aspect ofthe study, and effects that are not monetized areoften ignored. In contrast, focusing on the earliercomponents of the study (e.g., the emissions andimpacts stages) would emphasize aspects that aremost amenable to scientific and technical resolu-tion.

Monetization is useful, but its very nature al-lows the results of environmental cost studies tobe reported in a highly aggregated form. This en-courages use of the results without the full under-standing of the assumptions and values thatunderlie them. Placing greater emphasis on re-porting the results of earlier phases of the analysis(e.g., emissions and impacts assessments), and on

clearly explaining the assumptions and values thatunderlie the estimates of monetary damages,would greatly assist the federal decisionmakerswho may use the studies.

Informing Legislative DecisionmakingAt least for the near term, use of environmentalcost studies on the federal level is likely to engen-der continued disputes over methodology and re-sults. As is the case with current studies, much ofthe controversy over future studies will likely bedue to fundamental differences in assumptionsand the associated frameworks of goals and val-ues, rather than specific findings of a given study.For policymakers, accepting and using the quanti-tative findings of a particular study of environ-mental costs implies accepting the goals andvalues embedded in that study.

Some analysts believe recent studies (e.g.,DOE/EC and New York State) are converging ona common set of methods and their results shouldbe preferred over those of other studies. In severalways, these recent studies do represent advancesover older studies because they review a largerbody of literature, they are often more systematicin their survey of emissions and environmentalimpacts, and several elements of their technicalmethodology are more sophisticated.

However, this methodological sophisticationmay be less important than the studies’ basic as-sumptions, many of which depend on policy goalsand values that are beyond the purview of ana-lysts. These recent studies do make a relativelyconsistent set of assumptions. For example, thesestudies value environmental effects using onlydamage cost approaches (see chapter 3) and theyemploy relatively high standards of proof aboutwhat emissions and impacts should be included inenvironmental cost estimates. However, whetherthese assumptions represent objectively “better”choices depends on the goals and values of policy-makers who use these studies, rather than on theopinions of analysts.

Technical and methodological critiques of en-vironmental cost studies are important, but theyare not the only important critiques. A study may


be technically excellent and still not meet the of the policy makers’ public responsibilities. Inneeds of Congress and of executive branch agen- contrast, if a study’s values and assumptions arecies. If a study’s values and assumptions differ made clear and match those of the relevant de-radically from those of the relevant policy makers, cisionmakers, then the study may be able to pro-then they may reject the study on those grounds vide valuable insights of a sort that other analysesalone. Such an action would not be “ignoring sci- cannot.ence” but would constitute the legitimate exercise

Studies ofEnvironmental

Costs 2

Much of the technical debate over the environmental costsof electricity concerns a set of quantitative studies.These studies were conducted mostly within the pasttwo decades, and they attempt to evaluate the environ-

mental costs associated with different electricity generatingtechnologies. The studies serve as focal points for discussion.Their methodology, assumptions, results, and recommendationsare being examined and challenged by various stakeholders.

In many cases, the methods and assumptions of these studiesreflect the underlying values of the analysts who conduct the stud-ies and the groups that sponsor them. These values often lie at theheart of disagreements over estimates of environmental costs.Understanding the technical methodology and assumptions ofenvironmental cost studies can help to clarify the values that are atissue.

This chapter covers three areas. First, it discusses the generalstructure and purpose of environmental cost studies. Second, itsummarizes the history and quantitative conclusions of a selectedgroup of studies. Third, it compares and contrasts the selectedstudies in an effort to identify similarities and differences.

This chapter does not provide a detailed explanation of themethodological issues surrounding environmental cost studies ora detailed analysis of which methods are more or less appropriate.This report focuses on different issues—the values and assump-tions that underlie estimates of environmental costs and the im-plications for using these studies in policymaking. These topicsare discussed at greater length in chapters 3 and 4.

|9


THE PURPOSE AND STRUCTURE OFENVIRONMENTAL COST STUDIESEnvironmental cost studies are a relatively recentphenomenon. l The earliest studies that comparedseveral energy sources date from the 1970s, butnearly all studies of current interest date from the1980s and 1990s.

Many other studies exist that analyze othertypes of costs (see box 2-1), but particular atten-tion has focused on the environmental costs ofelectricity. One reason is that such studies have abuilt-in audience of government officials who reg-ulate the environmental effects of electricity gen-eration at both the state and federal levels. Stateand federal agencies have funded several studies,and many states have set policies based on thestudies’ results. Another reason is that, to conductan environmental cost study, a large body of scien-tific research on environmental effects must existor must be created. Such an extensive base of re-search may not exist in other areas.

Environmental cost studies are structured to fa-cilitate comparison of energy sources by usingmonetary values to summarize the environmentaleffects of each source. A study examines a rangeof environmental effects (e.g., health impacts of

from mining operations) of several energy sources(e.g., coal, nuclear, and solar), and applies thesame general methods to each source. The cost ofeach effect is quantified using a monetary valueand then, for each source, the monetary values areadded together to estimate the total cost of the en-vironmental effects associated with that energysource.

Environmental cost studies generally make es-timates for several electricity generating technol-ogies, including coal, nuclear, natural gas, oil,hydroelectric, solar, and wind.2 In addition, sever-al forms of each technology are often evaluated.For example, fossil fuel plants may use differenttechnologies for pollution control, and there areseveral approaches to generating electricity fromsolar energy. Because each of these technologiescan produce different environmental effects, stud-ies often treat them separately.

Environmental cost studies trace environmen-tal effects through at least three related stages (seefigure 2-1):3,4

● Identifying emissions—the environmental re-leases of byproducts of generation and use ofelectricity. For example, air emissions from

air pollution and ecological damage resulting

IFor a genera] in~~uction, S= Harold M. Hubbard, “The Real Cost of Energy,” Scientific American, April 1991, pp. 36-42. For a morein-depth treatment, see Temple, Barker & Sloane, Inc. and Electric Power Research Institute, Environmental Externalities: An Overview ofTheory andl%wfice, CU/EN-7294 (Palo Alto, CA: May 1991). For a technical introduction to economic theory and practice of environmentalcost studies, see G.M. Brown, Jr. and J.M. Callaway, U.S. National Acid Precipitation Assessment Program, “Report 27: Methods for ValuingAcidic Deposition and Air Pollution Effects,” Acidic Deposition: State of Science and Technology, Volume IV: Control Technologies, FutureEmissions, and Eflects Valuarion (Washington, IX: U.S. Government Printing Off]ce, September 1990). For an extensive bibliography, seeConsumer Energy Council of America, Incorporating Environmental Externalities Into Utility Planning: Seeking a Cost-Effective Means ofAssuring Environmental Quality (Washington, DC: July 1993).

Zsome studies even discuss the environment costs of energy efficiency measures. For example, (ltinger mentions two possible f2ffeCt.S:

1 ) indoor air quality may decline when buildings are weatherized, and 2) increased efficiency may lower a region’s peak energy demand and

shift load from gas-fired peaking turbines to base-load coal or oil plants. Richard L. Ottinger et al., Pace University Center for EnvironmentalLegal Studies, Environmental Costs of Electricity (New York, NY: Oceana Publications, 1990).

sAdapted from tie discussion in: Oak Ridge National Laboratory and Resources for the Future, U.S.-EC Fuel Cycfe Study: Background

Document to rhe Approach andlssues, ORIWJM-2500 (Oak Ridge, TN: Oak Ridge National Laboratory, November 1992). Early reviews ofexternality studies also explicitly cite a similar structure. For example, Holdren establishes a four-step process: 1 ) sources, 2) insults, 3) stresses,4) consequences. John P. Holdren, Integrated Assessment for Energy-Related Environmental Standards: A Summary of Issues and Findings,

LBL-12779 (Berkeley, CA: Lawrence Berkeley Laboratory, October 1980).

‘@here is no entirely satisfactory taxonomy of externalities. They can be categorized by pollutant, by source, by impact, or by fuel cyclephase (e.g., mining, processing, generation, use). See Andrew Stirling, “Regulating the Electricity Supply Industry By Valuing Environmental

Effects: How Much Is the Emperor Wearing,” Futures, December 1992, pp. 1024-1047.

Chapter2 Studies of Environmental Costs 111

This report focuses exclusively on the environmental costs of electricity generation, but several othertypes of related studies exist. Some studies focus on nonenvironmental costs of energy. For example,federal energy subsidies represent a nonenvironmental cost.l Tax dollars are used to pay the costs offederal loan guarantees, energy assistance programs, research and development, energy services,and funding of some administrative agencies. Energy consumers do not pay directly for these subsi-dies, instead, all U.S. taxpayers bear the costs of these programs. Although nearly all taxpayers use theenergy sources affected by federal subsidies (and vice versa), users do not pay for those subsidies inproportion to the amount of energy they use, Other nonenvironmental costs include induced public ex-

penditures (e.g., defense costs) and economic effects (e.g., production, employment, and trade bal-ance).

Several other studies examine benefits as well as costs.2 For example, energy generation facilitiescan increase employment. Whether an effect is a cost or a benefit can depend on factors other than theeffect itself. For example, additional jobs created by an electricity generating facility could be an eco-nomic benefit to an area with high unemployment. Alternatively, that same job creation could be a costto an area with labor shortages.3

Finally, some studies focus on topics other than electricity. For example, a number of studies ex-

amine various costs of transportation that may not be completely included in prices (e.g., subsidizedparking and roads, vulnerability to oil supply disruptions, congestion, and accidents).4 Some of theseeffects are energy-related (e. g., vulnerability to oil supply disruptions), but most of the effects examinedby these other studies have little direct bearing on electricity generation.

I u s, D~p~~tnlent of Energy, Energy Information Administration, Federa/ Errer~ Subsidies. Direct and /ndlrect /ntefVent/ons in

Energy Markets, SR/EMEU/92-02 (Washington, DC, November 1992); and Douglas N. Koplow, Federa/ Energy Subsidies” Ener~,Envwonmenta/, and Fisca//mpacts (Washington, DC Alliance To Save Energy, April 1993).

~he terms costs and benefits are used ddferently in different contexts, Deaths attributable to air pollution can be termed a cost of

energy generahon, preventmgthose deaths can also be termed a benefit of airpollutlon regulations. This report generally conforms tothe first usage

sAjay K s~nghl, “should Economic impacts @ Treated as Externalities?” The E/ecfricity ~Ourna/, March 1 ~1 i PP 54-59

AU s Congress, Office of Technology Assessment, Saving Eneqyin the U.S. Transportation System, OTA-ETI-589 (wastWXon,DC U S Government Prlntmg Office, July 1994), U S Congress, Congressional Research Serwce, “TheExternal Costs of 011 Used mTransportahon,” June 3, 1992; James J. MacKenzie et al., The Going Rate What/? Real& Costs To Drive (Washington, DC: WorldResources Institute, June 1 !392), David L, Greene and Paul N. Lelby, The Socia/Costs to the U.S. of the Monopohzation of the Wor/d Oi/Market, 1972-1991, ORNL-6744 (Oak Ridge, TN Oak Ridge National Laboratory, March 1993), and Peter Miller and John Moffet, ThePrice oftvfobhf-y Uncovenng the Mdden Costs of Transportation (New York, NY: Natural Resources Defense Council, October 1993).

SOURCE Office of Technology Assessment, 1994

burning fossil fuels include S02, C02, and par- ■ Evaluating damages-the monetary value ofticulates. See table 2-1 for additional examples. impacts. To the extent that environmental cost-

● Identifying and evaluating impacts—the physi- ing focuses on reducing all environmental im-cal or socioeconomic effects of emissions on pacts to a single scale (e.g., dollars), evaluatinghuman health (e.g., cancer and emphysema), damages becomes a necessary step in the analy-property (e.g., loss of commercial fishing or sis.erosion of stonework by acid rain), and ecolog-ical systems (e.g., decreases in biodiversity).See table 2-1 for additional examples.


Emissions Impacts Damages

o

I Oil

CoalHuman

Emissions health

SO2: Xx,xxCO2: XxXx . . .

. . . . . . . . .. . . . . . . . . . . . . . .

Total:

//

NOTE: This figure does not show the process for studies that relyexclusivelyon damage costing approaches (see chapters3 and 4 foradescription)

It also does not show the process of analyzing whether some damages are included in current electricity prices, a step that most existing studieshave not taken.



Emissions

Air emissions: SOX, NOX1, COX, particulate,trace elements, air toxics

Waste generation: Toxic, radioactive, solid, liquidRadiationElectromagnetic fields (EMF)ThermalNoisePesticide use around power linesRunoff from mining, processing, and fuel storage

Impacts

Human deaths and illness: accidents, cancer,respiratory illness, acute poisoning

Reduced production of crops, timber, or fisheriesDegradation of structures from atmospheric pollutantsLost recreational opportunitiesDegraded visibilityLoss of habitat and biodiversityUse of land, water, and mineralsNOTE The lists are not comprehensive Not all impacts are tied to

emissions or pathways.


Environmental cost studies use emissions toestimate impacts. Emissions travel through path-ways to create an environmental impact. For ex-ample, some studies estimate trace emissions ofS 02 through the pathway of acid rain to theeventual environmental impacts on forest ecosys-tems (see figure 2-l). In addition to emission-re-lated impacts, studies make estimates of impactsthat arise independent of emissions. For example,some accidental deaths and injuries result fromcoal mining.

Next, environmental cost studies use impactsto estimate monetary damages. Impacts are con-verted to damages through a process of valuation.For example, the monetary damages associated

with a lost forest ecosystem can be valued by sur-veying nearby residents who use the forest for rec-reation (see figure 2-l). It is not always possibleto attach monetary damages to impacts. Some im-pacts are left out of damage estimates either be-cause estimating damages is too difficult orbecause the damages are assumed to be negligible.

Although these three stages are common tomany studies, they are far from universal. First,some analysts advocate adding another stage toenvironmental cost studies-evaluating whetherdamages represent an economic externality (seebox 2-2). They argue that merely assessing dam-ages provides only part of the information that isimportant for policymaking. Second, some envi-ronmental cost studies do not derive damagesbased on impacts, but instead make damage esti-mates based on existing legislative, regulatory,and judicial decisions. These valuation methods,referred to as control cost methods, are covered inmore detail in chapter 3.

SELECTED STUDIESOTA selected eight environmental cost studies toexamine for this report (see tables 2-2 and 2-3).There are several other recent and ongoing studiesin addition to those that OTA examined in detail(see box 2-3). The eight selected studies demon-strate both the promise and problems of environ-mental cost studies. The studies were selectedbased on the following criteria:

Comprehensiveness: Each study covers a rangeof energy sources and environmental effects.lnfluence: Each study continues to influencecurrent thinking of analysts and decisionmak-ers.5

5For ~xample, one study (Inhabel-, 1978) was excluded on this bask. The Inhaber report has been strOnglY criticized for a variety of e~ors

(e.g., Holdren, 1979) and has little influence on current thinking. Herbert Inhaber, Risk of Energy Production, AECB-I 119/REV-2 (Ottawa,

Canada: Atomic Energy Control Board, November 1978); and John P. Holdren et al., Risk of Renewable Energy Sources: A Critique of the ln-huber Report, ERG 79-3 (Berkeley, CA: University of California, Energy and Resources Group, June 1979).


Economists have devised a formal theory of environmental costs, They define some environmentaleffects as externalities-costs imposed on society that are not included in the prices of the goods orservices. These costs are external, or outside, the existing system of energy pricing, By adding exter-nalities to the market costs of energy, an analyst can estimate the total cost or social cost of energy.

Some externalities have been avoided through environmental controls. Many environmental effectsare well documented and have resulted in environmental statutes, such as the Clean Air Act, Becausethere are serious consequences for violating the statutes, utilities have installed pollution control equip-ment to control emissions. Some of the cost of this equipment is passed on to consumers.

Other externalities have been included-or internalized—-in energy prices. For example, many ana-lysts believe that wages in some industries (e.g., mining and construction) compensate workers for therelatively higher risks they may bear. Wages of workers in these industries are included in the marketprices of energy, Other examples include settlements mandated by court verdicts in cases of environ-

mental damage and the costs of purchasing S02 emissions permits under the Clean Air Act. These

costs are incorporated into prices and thus partially or completely internalize the externalities,Some environmental effects are not considered to be externalities. Environmental effects may remain

even after an externality has been fully internalized. For example, suppose a power plant releases anair pollutant that is currently unregulated. If the pollutant has an environmental cost of $5 per ton, oneway of internalizing these costs is to charge utilities $5 for every ton of the pollutant their plants emit.Such a tax would cause utilities to install pollution-control equipment-up to the point that the equip-ment costs more than the emissions it prevents, Some residual emissions would remain because theyare too costly to prevent. At this point, it is cheaper for the utility to pay the tax than to control the re-maining emissions.

Some critics of applying environmental costs argue that current regulations completely internalizethe environmental costs for many pollutants. If regulations implicitly or explicitly balance social costsand benefits, then emissions have been reduced to an “optimal” level and the costs of that reductionare passed on to energy consumers. If regulations do not accurately balance social costs and benefits,then some environmental externalities may remain (if standards are set too low) or an economic ex-ternality may be created (if standards are set too high).

However, other analysts point out that, even if existing regulations balance costs and benefits, theremaining emissions still may represent an externality. Consider two different methods of reducing emis-sions of a pollutant to the same level. One method is an emission tax, set at a level equal to the margin-al damages caused by the pollutant. ’ Under this method, a utility will: 1) reduce emissions up to thepoint where the cost of control is equal to the cost of the tax, and 2) pay the tax on the remaining emis-

sions. The utility either eliminates emissions or pays for the damages those emissions cause, An alter-native method of regulating a pollutant is a mandated cap on emissions, set so marginal costs andbenefits are equal. Under this method, a utility will reduce its emissions to the mandated level, In con-trast to the first method, the utility will not incur any costs for its remaining emissions. Under this meth-od, the utility eliminates some of its emissions, but does not pay for the damages caused by the remain-ing emissions. In the latter case, the damages represent an externality.

IThe term margjna/damages refers to the damages associated with the “next” quantity of pollutant, rather than the average dam-

ages associated with allprevious quantities. Because thecostsand benefits of controlling emissions of pollutants can change with the

amount already controlled, It is important to examine margina/, rather thanaverage, values See chapter 4 for additional explanation,


Some environmental effects of energy remain largely unregulated. If the environmental damagesfrom such pollutants exist, they represent clear examples of externalities. For example, the C02 emis-sions of electric utilities are thought to contribute to global warming, but these emissions are not regu-lated on the federal level, Several state public utility commissions (PUCs) have recognized the potentialof future damages associated with C02 emissions as an externality, and they require that utilities con-sider C02 emissions during new capacity planning. To the extent that global warming is a serious envi-ronmental threat, unregulated C02 emissions represent an externality-a cost of energy use not in-cluded in the market price.

SOURCE Office of Technology Assessment, 1994.

• Methodological discussion: Each study pre-sents a substantive discussion of the methodsused to create its estimates.6

Despite these similarities, the studies also dif-fer in many respects:

Analysts and sponsors: Groups that conductedstudies include academic groups, consultingfirms, research organizations, environmentalgroups, and government laboratories (e.g., re-spectively, Pace University Center for Envi-ronmental Legal Studies, RCG/Hagler BaillyInc., Resources for the Future, Natural Re-sources Defense Council, and Oak Ridge Na-tional Laboratory). Sponsors include utilities,state governments, citizens’ groups, and feder-al agencies (e.g., respectively, Boston Gas Co.,New York State, Northwest Conservation ActCoalition, and the U.S. Department of En-ergy).Age: The oldest study was published in 1982.The newest studies (New York State and DOW

EC) are due to be completed in late 1994. In theintervening years, there have been new devel-opments in valuation methodology, availabledata, and understanding of pollutant emissions,transport, and health effects.Size and complexity: Some studies are relative-ly short and simple (e.g., Shuman and Cava-nagh’s estimates are presented in less than 60pages). Others are quite long and complex(e.g., Pace’s analysis runs more than 700pages).Energy sources: Some studies deal only withfossil fuels (e.g., coal, oil and natural gas). Oth-er studies estimate costs for a range of othersources (e.g., nuclear, solar, wind, biomass) aswell as energy -efficiency measures.Methods: Methods vary widely among studies(this topic is dealt within greater detail in chap-ters 3 and 4).Environmental: effects: The studies do not allcover the same environmental effects. Somestudies deal almost exclusively with air emis-

6For ~xamp]e, one frequently ~jted ~t”d~ (S~hj]~rg et al., 1989) was excluded on his basis. ne s~dy cited ~d compared a number of

estimates, but did not contain extensive methodological discussion of its own. Gayatri M. Schilberg et al., “Valuing Reductions in Air Emissions

and Incorporating Into Electric Resource Planning: Theoretical and Quantitative Aspects,” California Energy Commission Docket 88-ER-8,JBS Energy, Inc., report prepared for the Independent Energy Producers, Sacramento, CA, Aug. 25, 1989.

.

Name Date Authors Sponsors Comments

U.S. Department of Energy(DOE) and Commission ofthe European Communities(EC)

(forthcoming) Resources for the FutureOak Ridge National Laboratories

U.S. Department of Energy;Commission of the EuropeanCommunities

Unfinished. Resources:$3 million and 36 months.

New York State (forthcoming) RCG/Hagler, Bailly, Inc. New York State Energy Researchand Development Authority;Empire State Electric EnergyResearch Corp.Electric Power Research Institute

Unfinished. Resources: $1.75million and 36 months. Willrely partially on DOflECresults.

Pace

Tellus Insitutute

1990

1990/1991

Richard Ottinger, et al.Pace University Center forEnvironmental Legal Studies

New York State Energy Researchand Development Authority;U.S. Department of Energy

o

Limited to air emissions offossil fuels. Specific toCalifornia and NortheasternUs.

Stephen Bernow et al.Tellus Institute

Several state energy agenciesand utility regulatory bodies(Vermont, Massachusetts,California, and Rhode Island)

Paul Chernick and Emily CaverhillPLC, inc.

Boston Gas Co.; filed with theMassachusetts Department ofPublic Utilities

Chernick and Caverhill 1989

1988 Specific to the former FederalRepublic of Germany.

Hohmeyer Olav HohmeyerFraunhofer-lnstitute for Systemsand Innovation Research,Federal Republic of Germany

Commission of the EuropeanCommunities

Bonneville PowerAdministration (BPA)

Shuman and Cavanagh

1983-1987

1982

ECO NorthwestBiosystems AnalysisNero and Associates

Bonneville Power Administration;U.S. Department of Energy

Seven studies, each on adifferent source (e.g., coal,nuclear).

Specific to Northwest U.S.Michael Shuman and RalphCavanagh, Natural ResourcesDefense Council

Northwest Conservation ActCoalition

NOTE’ Names reflect terms commonly used to refer to the study in subsequent literature. Sponsors do not necessarily endorse or agree with a study’s findings, particularly in the case of

government agencies Studies were selected based their comprehensiveness, influence, and methodological discussion. Several other studies exist that do not meet one or more of OTA’Sselection criteria. See box 2-3 for recent studies not reviewed in this report.

SOURCE. Office of Technology Assessment ,1994

DOE-EC Nevv York State Chernick and Shuman and(unfinlshed) (unfinished) P a c e Tellus Caverhill Hohmeyer BPA Cavanagh

Sourcesmonetized

coaloilnatural gasnuclearsolar (PV)windhydroelectricbiomassconservation

coal (4)oil (3)natural gas (3)nuclear (2)biomassMSWhydroelectric (2)windsolar (2)

coal (4) coal (4)oil (4) oil (7)natural gas (3) natural gasnuclear (3)solarwindbiomassefficiency

coal (4) fossil fuelsoil (4) nuclearnatural gas (4) solar (PV)

wind

coal (2) coaloil nuclearnatural gas windnuclear solar (hot water)biomass efficiencyMSWgeothermalsolar

(central)windhydroelectric

— —demand-sidemanagement

Sourcesdiscussed,but notmonetizedEmissionswithmonetizedimpacts

w a s t e - t o - e n e r g y — — ——hydroelectricgeothermal

SO2

NOX

N20c o2

coparticulatevolatile

organics

(notapplicable)

s o2 air pollutants (varies) air pollutants(not available) so2

NOX

particulatenitratesleadmercuryozoneacid aerosolsair toxicswater pollutionradiationsolid waste

human healthproperty

Sox

NOX

c o2

particulateradiationnuclear

accidentsnoise

NOX c o2 c o2

c o2 nuclearCH4 accidentsmarine oil spills indust.

accidentsnoise

radiationnuclear

accidentsindust. accidentstransp. accidents

M

ohuman health human healthproperty property

human healthproperty

damageglobal warmingcrop damageland usevisibility

(varies) human healthproperty

damageglobal warmingproliferation

Monetizedimpacts

(not available)

damage damageglobal warming global warmingecosystem ecosystem

damage damagecrop damage land uselivestocktimbervisibility

damagecrop damagefisheries damageland usevisibility

—

DOE-EC New York stats Chernick and Shurnan and(unfinished) (unfinished P a c e Tellus Caverhill Hohmeyar BPA Cavanagh

Effects (not available) energy securityquantifiedbut notmonetized

Effects noted (not available) C02

but notquantified

Stages or emphasis on miningactivities generation fuel processingmonetized transportation

generation

Valuation (damage cost) (damage cost)methods

acid rain; wateruse and pollution;thermal pollution;land use; solidwaste; methane;

ecosystemeffects;non-routinenuclearemissions;damage tohistoricalmonuments;livestock;forestry;electro-magneticfields

generationdecommissioning

marketcontingenthedonicmitigation cost

—

waterpollution,noise, traffic

generation(airemissions)

control costmitigationcost

particulate;

air toxics; carbonmonoxide; ozone;electro-magneticfields; herbicideuse ontransmissionrights-of-way;land use; wastedisposal; waterpollution; thermalpollution; N20;indoor airpollution

generation

marketcontrol costmitigation cost

—

species loss;routine nuclearemissions;damage tohistoricalmonuments;production ofintermediategoods used inenergygeneration;impacts of stagesof fuel cyclebesidesgeneration

generation

markethedonicmitigation cost

(varies) —

(varies) waterconsumption;recreation losses;fish and wildlifemortality;aestheticdamage;transmission anddistribution

(varies) extractiontransportationgeneration

(varies) markethedoniccontrol cost

NOTES: Numbers m parentheses in “Sources” indicate the numtxx of different systems within the general source category that were considered (e.g., “Coal (3)” indicates that the study

estimated environmental costs for three different types of coal plants). When effects are listed as “quantified but not monetized, ” monetization may have been discussed, but the studyproduced no specific monetization estimate. Not all emissions, impacts, or effects were necessarily estimated for all energy sources, The Pace study discusses hydroelectric, but does not

estimate monetized environmental costs for this source. Information in some studies had to be adapted to fit the structure of this chart. Valuatlon techniques based on damage costs includemarket, contingent, and hedonic valuation. Human health includes both public and occupational impacts. Some studies estimate nonenvironmental costs such as subsidies and macroeco-

nomic effects; these are not included in this chart. The source listed as “efficiency” denotes several different approaches; Pace evaluated demand-side management; Shuman and Cava-

naugh evaluated household weatherization. Valuation methods are discussed in greater detail in chapter 3.

SOURCE: Office of Technology Assessment, 1994.


The following studies were identified in the course of OTA’S analysis but are not extensively reviewedin the body of this report Each is briefly discussed below and its Implications for the report are ex-plored

StudiesNevada: These two studies were prepared by National Economic Research Associates, Inc. (NERA)

for two Nevada utilities (Sierra Pacific Power Co, and Nevada Power Co ),1 The studies estimate envi-

ronmental costs for five conventional air pollutants (PM-1 O, NOX, SOX, VOC, CO). In addition, estimates

are made for environmental costs associated with four greenhouse gases (CO2, CO, methane, and

N20) These latter estimates are based on estimates made by other studies and the reports note theyare highly speculative. All estimates are given in terms of dollars per pound of pollutant. The study doesnot derive overall environmental costs associated with particular power or plant types. In this way, theNevada studies differ from the studies reviewed in the body of the report.

Australia: This study was prepared by RCG/Hagler, Bailly, Inc. and SRC Australia Pty Ltd. as part of

a larger project to evaluate and develop externalities policy for Victoria, a province in Australia.2 Theproject was commissioned by the Victorian Department of Energy and Minerals and also sponsored bythe Commonwealth Department of Environment, Sport and Territories, the State Electricity Commissionof Victoria, the Gas and Fuel Corp. of Victoria, and the Renewable Energy Authority Victoria. Environ-mental cost estimates were made for particulate, nitrogen oxides, sulfur dioxide, ozone, air toxics,wastewater discharge, solid waste, and greenhouse gases. Estimates also were made of the socioeco-nomic benefits. The estimates are specific to the Latrobe Valley, a particular geographic region in Victo-ria, Although the report focuses on estimates in terms of dollars per pound of pollutant, the costs of onespecific power plant are provided.

Wisconsin/Minnesota: These two studies have been prepared by RTI and NERA for U.S. utilities inWisconsin and Minnesota. In both cases, the studies have not been made public by their sponsors, dueto their use in pending rate cases before state regulatory commissions. They will be released by theend of 1994.

California Energy Commission: For several years, the California Energy Commission (CEC) hassought to quantify environmental costs of constructing new generating facilities. These analyses havebeen part of the Energy Report process, a formal process that includes adopting environmental costestimates to be used for energy planning. The 1992 Energy Report process used values based on esti-mates made by Regional Economic Research, Inc. This research recently has been compiled into a

single document.3

1 Nahonal Economic Research Associates, Fma/ Repofl. Externa/ Costs of E/ectric Utility Resource Se/ection m Nevada, reportprepared for the Nevada Power Co (Cambridge, MA March 1993), National Economic Research Associates, Fina/Report ExZerna/

Costs of Hectric UtI/W Resource Se/ecflon m Northern Nevada, report prepared for Sierra Pacific Power Co (Cambridge, MA De-cember 1993)

2 RcG/Hag@ Ba(lly, Inc and SRCAustralla Pty Ltd., Extema/ity Po/icy/3eve/opn?errtProject” Energy Sectoc cOfrSUftantS’sU~Ma-

ry Report for the Uctorlan Study (East Melbourne, Victoria Department of Energy and Minerals, October 1993)3 Mark A Thayer et al , Regional Economic Research, “The Air Quality Valuation Model, ” draft report, Apr 21, 1994

(continued)


ImplicationsThe Nevada, Australia, Wisconsin, Minnesota, and CEC studies are not discussed elsewhere in this

report. In the case of the Wisconsin and Minnesota studies, they could not be discussed because suffi-

cient information was not available, In the case of the Nevada, Australia, and CEC studies, they provideonly limited results. The Nevada studies provide cost estimates for air emissions only, and do not pro-vide comparative figures for different types of power plants. The Australia study provides estimates for amore comprehensive set of effects, but only applies those figures to evaluating the overall costs of asingle type of plant (a coal-fired power plant). The CEC study provides estimates only for air emissionsand only for a limited number of generating technologies that are being considered in California.

Results from these newer studies do not alter OTA’S overall findings, The estimates of environmentalcost studies still vary widely, depending on the values and assumptions embedded within the studies.Differences in these values and assumptions are unlikely to be resolved by technical studies, Acceptingthe results of a particular study involves the implicit or explicit acceptance of a large set of assumptionsabout what effects to include and how to value those effects,

Results of these newer studies confirm several of OTA’S findings. First, their cost estimates are gen-erally far lower than many previous studies. The two Nevada studies make cost estimates associatedwith different air emissions that are between 30 percent and less than 1 percent of similar cost esti-mates of the Tellus and Pace studies. Similarly l the Australia study estimates the environmental cost ofan existing coal plant as between 0.0013 and 2.3 cents/kWh, with a central estimate of 0.0020 cents/kWh. By comparison, the Tellus and Pace studies make estimates ranging between 3 and 10 cents/kWh. These results reinforce the conclusion that cost estimates are extremely variable. Second, resultsof these newer studies differ from results of other studies in ways discussed in chapter 4. In comparison

with many other studies, these newer studies are more restrictive in the categories of costs that are

included and in how those costs are valued. Consequently, their cost estimates are lower than those of

many earlier studies,

SOURCE. Office of Technology Assessment, 1994,

●

sions of fossil fuels, others include emissionssuch as oil spills and impacts such as nuclearwar.7

Categorization of effects: Several of the studiescategorize environmental effects by emissions,presenting results for S02, C02, NOX, and otheremissions and then adding them to obtain over-all estimates of environmental costs (e.g., Pace,Tellus, and Chernick and Caverhill). Otherstudies categorize effects by type of impact

such as flora, fauna, human, and climate im-pacts (e.g., Hohmeyer).Technology specificity: Some studies group anumber of different technologies into a singlecategory. For example, Hohmeyer’s study pro-duces only a single estimate of environmentalcosts for all fossil fuels. In contrast, other stud-ies (e.g., Pace, Chernick and Caverhill) differ-entiate estimates based on generation tech-

7one Swdy (shurn~ ~d cav~agh) includes tie risk of nuclear war in its high-end estimates of environmental CONS associated wi~ nu-

clear power. They contend that use of nuclear power increases the proliferation of nuclear weapons, and proliferation increases the risk of nu-clear war. Michael Shuman and Ralph Cavanagh, A Model Conservation and Electric Power flanfor the Pacijic Northwest, Appendix 2: Envi-ronmental Cosfs (Seattle, WA: Northwest Conservation Act Coalition, November 1982).


nology (e.g., oil combustion turbine) and by thesulfur content of fuels.Location specificity: Some studies are specificto a particular region of the country, whereasothers are intended to be more general. Highlyspecific studies calculate impacts based on as-sumptions about population densities, particu-larly sensitive or resistant ecosystems, ortransport or deposition of pollutants. Severalstudies have chosen specific sites to evaluate,in order to be able to make specific assumptionsabout the exposed population and the surround-ing ecological conditions.8~9

Despite these differences, it is tempting to lookfor common conclusions, or to average numericalresults, in an effort to obtain conclusions withgreater validity than those of a single study. How-ever, the differences among the studies make itdifficult to compare their results in a meaningfulway. Taken together, these studies point more to-ward the diversity of approaches to evaluatingenvironmental costs than toward common conclu-sions.

Each study is discussed briefly below. Eachcompleted study is accompanied by a table pre-senting its quantitative results. The results are pre-sented first in a way that is as close to the originalstudy as possible—the cost figures have not beenrounded or recalculated. 10 In addition to the origi-nal figures, a set of adjusted figures in 1990 dol-lars is given for each study to facilitateinflation-adjusted comparisons.

Additional discussion of methodological is-sues is presented in chapters 3 and 4. The studiesreviewed below are used to illustrate that discus-sion.

| Department of Energy/Commission ofthe European Communities

The DOE/EC study is a major ongoing study initi-ated in February 1991 by the U.S. Department ofEnergy (DOE) and the Commission of the Euro-pean Communities (EC). The two organizationsagreed to support a study to develop a comparativeanalytical methodology and the best range of esti-mates of external costs for eight fuel cycles andfour conservation options.

11 The eight fuel cycles

are coal, oil, natural gas, uranium, biomass, hy-droelectric, photovoltaic, and wind. The study isexpected to conclude in late 1994.

Responsibilities for the analytical work havebeen split between U.S. and European researchteams. The teams share lead responsibilities forthe nuclear study. The U.S. leads the coal, oil, nat-ural gas, biomass, and hydroelectric studies. TheEC leads the conservation, photovoltaic, and windstudies. DOE’s portion of the study was con-tracted to Oak Ridge National Laboratory(ORNL) and Resources for the Future (RFF).12,13

The EC organized a similar study team.In November 1992, the U.S. contractors issued

a report that summarized progress to date and de-tailed modifications made to the initial DOE/ECagreement. 14 The 1992 report remains the only

8For ~xamp]e, the studies by DO~EC and BpA.

9For ~ extensive discus~i~n of this issue, and approaches to extending findings from one ]Ocation to other ]Ocations, see AlaJI J. Krupnick,

“Benefit Transfer and Valuation of Environmental Improvements,” Resources, vol. 110, winter 1993, pp. 1-7.IOsom ~alyst~ have recalculated cost estimates s. mat they refer to a ~t of standard power plants. NO such recalculation was attempted

here. For an example of such recalculation, see Jonathan Koomey, Comparative Analysis of Monetary Estimates of External Ern’ironmentalCosts Associated With Combustion of Fossil Fuels, LBL-28313 (Berkeley, CA: Lawrence Berkeley Laboratory, July 1990).

I I’rhe Federal Energy Regulatory Commission is also a sponsor of the U.S. pOItiOn of he s~dy.

1 ZO~ Ridge National La~ratory is a federally owned, con~actor.o~ra~d laboratory. Resources for the Future is an independent nonprof-

it organization that conducts research on the development, conservation, and use of natural resources and on the quality of the environment.

13AS with most rep~s con~act~ for by ~E, tie s~dy’s conclusions will not necessarily repfeSeIlt the VieWS of itS SpOtlSO1’S.

I’$oak Ridge Nationa] Laboratory and Resources for the Future, Op. Ch., footnote 3.


publicly available document on the DOE/ECstudy. However, in January 1993, DOE circulateda draft report for peer review. In August 1993, peerreview was complete and the report was returnedto ORNL and RFF for modifications. The coal-specific report is expected to be issued in Septem-ber 1994, with the remaining reports (on oil,natural gas, hydroelectric, biomass, and nuclear)to be completed by the end of 1994.15

The DOE/EC study is not completed, but manydetails of its methodology are available. The studyis using damage cost approaches (see chapter3)-one of the first times damage costing has beenused exclusively in a major study of the environ-mental costs of electricity. Its component reportsplan to cover a broad range of fuel cycles andstages of energy production (e.g., mining, trans-portation, use, and waste disposal). Each fuelcycle report will focus on one or two actual plants,in an effort to produce specific and defensible re-sults.

| New York StateThe New York State study is a major ongoingstudy that began in December 1991. It was under-taken in response to an order from New York Pub-lic Service Commission, and its goal is to developa methodology and computer model that will per-mit estimation of environmental costs. The modelwill apply to new electricity generating plants, re-licensed plants, and electricity demand manage-ment options in the state of New York.

The study is a joint effort of four organizations:the New York State Department of Public Service,the New York State Energy Research and Devel-opment Authority, the New York State electric uti-lities through the Empire State Electric EnergyResearch Corp. (ESEERCO), and the ElectricPower Research Institute (EPRI).16 The latter

three organizations are funding the $1.75-millionproject.

The project is managed by a five-memberboard of representatives from the four organiza-tions and one representative from Resources forthe Future, an independent expert selected by thefour other members. The management board di-rects the work of two contractors: the researchcontractor (RCG/Hagler, Bailly, Inc.) and thecoordinating contractor (Industrial Economics,Inc.).

The project will produce four separate reports:1) a critical review of existing research thatscreens a large number of possible emissions andimpacts, 2) a recommended methodology, 3) acomputer model and manual, and 4) case studiesthat represent applications of the model. The firstreport was completed in December 1993 and be-came available to the public in May 1994.17 Theother reports are expected to be finished by the endof 1994.

The first report screens different possible envi-ronmental effects for inclusion in the final com-puter model. The report reviews a large number ofemissions and impacts, and it categorizes thembased on initial judgments of the size of their asso-ciated damages and their ability to be accuratelyquantified. Later reports will concentrate on theemissions and impacts judged to be both large andamenable to quantification.

Among the studies reviewed by OTA, the NewYork State study is unique because of its intendedoutput. The study will produce a software-basedmodel that runs on personal computers. The soft-ware will permit users to modify the values ofmodel parameters (e.g., levels of emissions andcosts per unit of emission) and will produce esti-mates based on those values. All other studiesreviewed in this report provide only a printed

Ispaul Cmier, ~p~ent of Energy, personal communications, January, April, May, ~d JUIY 1994.

16EPRI’S ~~jcjpatjon is limited to the first phase of the study (see below).

17 RCG/Hagler, Bailly, Inc., “New York State Environmental Externalities Cost Study Report 1: Externalities Screening and Recommendat-

ions,” ESEERCO Project EP91-50, December 1993.


report with environmental cost estimates based ona single, or at least limited, set of parametervalues. 18

I PaceThe Pace study is one of the best known and mostfrequently cited studies of environmental costs.The study was prepared for the New York StateEnergy Research and Development Authority andthe U.S. Department of Energy, and it was pub-lished in 1990.19 The study is wide-ranging, cov-ering different energy sources (e.g., coal, oil,natural gas, nuclear, renewable, waste-to-energysystems, demand-side management) and environ-mental effects (e.g., air and water pollution, globalwarming, acid rain, land use). The report also in-cludes a brief discussion of policy tools on boththe state and federal levels.

Quantitative results of the study are summar-ized in table 2-4. The study concludes that envi-ronmental costs associated with coal, oil, and nu-clear are highest, costs associated with natural gasare somewhat lower, and costs associated with re-newable sources (solar, wind, and biomass) anddemand-side management are substantially lower.

The Pace study explicitly notes several classesof environmental costs excluded from the analy-sis, generally due to uncertainty or lack of data.For fossil fuels, it excludes greenhouse gases suchas methane and N20; air toxics; water use, landuse, and solid waste disposal; and environmentalcosts associated with fuel extraction, transporta-tion, and processing. For nuclear power, it ex-cludes extraction and transportation of uranium.Due to the exclusion of these environmental costs,the authors believe their estimates are more likely

to be underestimates than overestimates.The Pace study summarizes, critiques, and

evaluates much of the existing literature. Theseestimates are then combined to produce illustra-tive estimates. However, the authors note thatsome of the studies they reviewed were inade-quately documented and substantively deficient.The authors caution that the quantitative results ofthe study should not be cited as definitive esti-mates, but rather indicate the order-of-magnitudeof results and should be a useful starting point forfurther research.

| TellusThe Tellus study represents work published in1990 and 1991 by Stephen Bernow, Donald Mar-ron, and Bruce Biewald of the Tellus Institute, anindependent, nonprofit research and consultingorganization. The Tellus work is not a singlestudy, but instead is comprised of several esti-mates produced for state regulatory commissionsand state energy agencies. A 1990 report summa-rizes this previous work and describes the esti-mates and methodology concisely. In addition, a1991 journal article applies the results of the 1990report to estimate overall environmental costs forseveral combinations of generating technologiesand fuels.20

The study differs from other environmentalcost studies in two important respects. First, theTellus study only provides estimates of the costsof air emissions. Costs of other types of emissions(e.g., radiation), and impacts (e.g., industrial andtransportation accidents) are not estimated. Airemissions are relevant only to the burning of fossil

18@e study not reviewed ~ this repofi does inC]U& a Cornpukr model: Mark A. Thayer et al., The Air Quality Valuation Model (San Diego,

CA: Regional Economic Research, Inc., Apr. 21, 1994).

Igottinger et al., op. cit., fmmote 2.Zostephen Be~O~ ~d Dona]d M~On, valuation of Environmental Exter~/i[ies for Energy planning and Operations, May 1990 Update

(Boston, MA: Tellus Institute, May 18, 1990); and Stephen Bemow et al., “Full-Cost Dispatch: Incorporating Environmental Externalities in

Electric System Operation,” The Electricity Journal, March 1991, pp. 20-33.


By emission type

Type cost, $/lb (1989) Cost, $/lb (1990)

SO2 2.03 2.13Particulate 1.19 1.25N ox 0.82 0.86c o2 0.0068 0.0071

By plant type

Plant Cost, $/kWh (1989) Cost, ¢/kWh (1990)Coal

Existing boiler (1 .2% S)AFBC (1 .1% S)IGCC (0.45% S)NSPS

OilBoiler (0.5% S)Boiler (1% S)Boiler (2.2% S)Combustion turbine (1% S)

Natural GasExisting steam plantCombined cycleBACT

Nuclear

Renewab/esSolarWindBiomass

Demand-side Management

6.83.32.84.5

3.24.57.93.0

1.21.10.8

2.91

0-0,40-0.10-0.7

0.0

7.13.52.94.7

3.34.78.33.1

1.3

1.10.8

3.05

0-0.40-0.10-0.7

0.0

NOTE: Values in 1989 dollars and cents are reported in the study. Values in 1990 dollars and cents are adjusted using the consumer price index

The values reported above for various emission types are listed by Ottinger et al. as “rough starting points”; in several cases (S02, NOX, andparticulate), the authors contendthal the damages “could be much higher.’” Values for acid deposition, electromagnetic fields, and land and wateruse impacts were not estimated due to inadequate data. Most plant types for fossil fuels list the sulfur content of the fuel (e.g., 1,2% S).

Thestudyderwedvalues forvarious plant types from thevaluesfor emission types Thestudyfoundthat waste-to-energy plants were Iiketyto have

fairly large environmental impacts, but they concluded that more research was needed before a quantified estimate could be made,

KEY: NSPS = New source performance standards: IGCC = Integrated gas combined cycle: AFBC = Atmospheric fluidized bed combustion

BACT = Best available control technology

SOURCE: Richard L. Ottinger et al., Pace University Center for Environmental Legal Studies, Environmental Costs of Hectricity (New York, NY:Oceana Publications, 1990).

fuels (coal, oil, and natural gas) and these are the Second, the Tellus study is unique because ofonly sources for which Tellus generates esti- its exclusive reliance on a valuation methodmates.21 A summary of the Tellus estimates is known as control costing.22

It derives all esti-provided in table 2-5.

zl~spi~ ~ese lj~~tjons, tie Tellus study is an important one to consider. It strongly defends the use of control cost approaches, Md its

results have influenced the actions of several state regulatory commissions.

zz~er s~djes m~e ~cmjonal use of control cost valuation. Tellus is the only study to rely exclusively on control costing.


By emission typesouthern Southern

Northeast U.S. California Northeast U.S. CaliforniaType cost, $/lb (1989) cost, $/lb (1989) cost, $/lb (1990) cost, $/lb (1990)

NOX 3.50 131.00 3.7 137.29S ox 0.75 37.50 0.79 39.30Volatile organic gases 2,65 14.50 2.78 15.20Particulate 2.00 24.00 2.10 25.15c o 0.43 0.43 0.45 0.45c o2 0.011 0.011 0.012 0.012CH4 0.11 0.11 0.12 0.12N 20 1.98 1.98 2.08 2.08

By plant type

Plant Cost, ¢/kWh (1990)

coalFGD2.37°A sulfur1.83°A sulfur0.82% sulfur

OilSteam, 1 .5% sulfurSteam, 1 .3% sulfurSteam, 1 .0% sulfurSteam, 0.75% sulfurSteam, 0.70% sulfurSteam, 0.30% sulfurCombustion turbine

Natural GasSteamCombustion turbineCombined cycle

4.477.009.976.05

5.553.924.083.543.864.446.04

2.374.221.68

NOTE: Values by emission are from Bernow and Marron, 1990. Differences in cost estimates between the Northest United States and Southern

California result from ddferences in applicable state laws. Estimates for NO. and CO include both ambient air quality and greenhouse warmingimpacts; volatwe orgaruc gases include both volatile organic compounds and reactive organic gases; particulate include both total suspended

partlculates and PM1O. Values by plant type are from Bernowet al., 1991 (table 5) and are based on power plants operating in the NortheasternUnited States. FGD = flue-gas desulfurization.

SOURCES. Stephen S. Bernow and Donald B. Marron, Va/uation of Environment/ Externalities for EnergyP/arming and Operations, May 1990

Update (Boston, MA. Tellus Institute, May 18, 1990); and Stephen Bernow et al., “Full-Cost Dispatch’ Incorporating Environmental Externalltles mElectrlc System Operation,” The Electricity Journa/, March 1991, pp. 20-33.

mates of environmental costs from the costs im- erence” of regulators—a cost that regulators areposed by existing legislation.23 It estimates the willing to impose on utility customers to controlcosts of compliance with existing regulations, and emissions. Control costing is covered in more de-then uses these values to indicate a “revealed pref- tail in chapter 3.

23~ere iS one ~xceptionc Enviro~en~l ~osts associa~d wi~ c@ emissions were estimated using tie cost of mitigating the ChMgt?S fiOIll

global warming.


The control costing approach used in the Tellusstudy results in varying estimates for the environ-mental costs of emissions in different areas of thecountry. In several cases, estimates of the environ-mental costs associated with air emissions in theNortheast are substantially lower than estimatesfor the costs associated with air emissions inSouthern California. This difference results fromCalifornia’s more stringent emission standards.California’s standards impose higher costs on uti-lities and their customers, thus resulting in a high-er estimate of environmental costs associated withparticular emissions.

| Chernick and CaverhillThe Chernick and Caverhill study was producedin 1989 by Paul Chernick and Emily Caverhill ofPLC, Inc.,24 a consulting firm in Boston, Massa-chusetts. 25 The study was sponsored by the Bos-ton Gas Co. and filed with the MassachusettsDepartment of Public Utilities. It targets issuesimportant to New England and the northeasternUnited States, and is not intended to provide re-sults applicable to the entire United States. It esti-mates environmental costs for coal, oil, andgas-fired generators. It makes no estimates of theenvironmental costs associated with othersources, such as nuclear, hydroelectric, solar, andwind power.

Chernick and Caverhill make estimates bycombining several sources of information. Theyexamine estimates from previous environmentalcost studies (e.g., for S02 and NOX),26 from in-formation about the costs mandated by various en-vironmental regulations (e.g., for S02 and NOX),

and from the costs of mitigation (e.g., for C02,CH4, and marine oil spills). For each emission,they examine the range of estimates offered byeach method, and then choose what they feel to bea plausible value.

The study estimates values for two generalcategories of environmental effects: air emissions(S02, NOX, C02, and CH4) and marine oil spills.In addition, estimates are made of the environ-mental costs associated with the macroeconomiceffects of oil imports. The report also lists a set ofother environmental costs as identified, but notquantified: additional air emissions (air toxics,CO, particulate, and ozone) and a variety of non-combustion-related environmental costs (e.g.,electromagnetic radiation, pesticide use on trans-mission rights-of-way, water and thermal pollu-tion, indoor air pollution, and accidental injuriesand deaths in extraction and transportation).

Table 2-6 presents a summary of the study’s re-sults on environmental costs. The report contendsthat estimates of environmental costs are morelikely to be underestimates than overestimates.Overall, the study estimates the environmentalcosts associated with natural gas to be somewhatlower than those associated with coal and oil.

| HohmeyerThe Hohmeyer study was published in 1988 byOlav Hohmeyer, then an economist and deputyhead of the Department of Technical Change at theFraunhofer-Institute for Systems and InnovationResearch in the Federal Republic of Germany.27

It was sponsored by the Commission of the Euro-pean Communities.

2~e ~o~pay is now n~ed Resource ImigM, Inc.

2SpauI Chemick ~d Emily Caverhill, PLC, Inc., ‘The Valuation of Externalities From Energy Production, Delivery, and Use: Fall 1989

Update,” A Report to the Boston Gas Co., Dec. 22, 1989. Although entitled an “update,” this report is the primary document referred to by otherstudies and analysts in the area, and appears to contain the primary methodological content.

261n p~icular, Chemick and Caverhi]] use several studies conducted for the Bomeville Power Administration (BPA) (see bdow). In mmy

cases, the authors adapt the BPA calculations to add effects they feel were left out of the original calculations.

2701av Hohmeyer, SWial Costs of Energy Cmswptim: External Effects of Electricity Generation in the Federal Republic of Germany

(Berlin, Germany: Springer-Verlag, 1988).


By emission type

Type Cost, $/lb (1988) Cost, $/lb (1990)

s o2 0.88 0.96NOx 1.50 1.64c o2 0.011 0.012CH4 0.35 0.38Marine 011 spills o.20/MMBTU o.22/MMBTU

By plant type

Plant Cost, ¢/kwh (1988) Cost¢ ¢/kWh (1990)

CoalExisting (1 .2% S) 5.7 6.2AFBC 3.8 4.1IGCC 3.2 3.5NSPS 4.9 5.3

Oil

Existing steam plant (0.5% S) 3.6 3.9Existing steam plant (1% S) 4.3 4.7Existing steam plant (2.2% S) 5.8 6.3Combustion turbine (0.3% S) 5.0 5.5

Natural GasExisting steam plant 1.9 2.1Combined cycle 1.9 2.1NSPS 1.6 1.7BACT 1.28 1.40

NOTE MBTU = 1,000 BTU Values in 1988 dollars and cents are reported in the study. Values in 1990 dollars and cents are adjusted using the

consumer price index Values are speclflc to the Northeast. The authors felt that the values reported above are “more likely to be understated thanoverstated “ (p 96) Values for many other classes of costs were not estimated, due to their inability to quantify them with any certainty

Valuesforod-fired generators were adjusted toexc/ude an oil import premwmthat was included mthereport<sfmal estimates This premum reflectsthe national economic cost of oil imports It includes costs asscxxated with vulnerabhties to interruptions and price swings, increases m mflahon,and deterioration of the balance of payments In contrast to every other effect estimated, the 011 import premum IS nonenvlronmental.

The study derwes values for for various plant types from the values for emission types. In addition to the combustion-related emmons, 00007

pounds of NOX were included for each source to account for emsslons during transportation No cost estimates were made for some combushonemlsslons (aw toxlcs, CO, partlculates, and ozone) and for some noncombustlon related effects (e g., electromagnetic radlatlon, solid waste gen-

erahon, water and thermal polluhon, and accidental deaths and injuries).

Values for new coal and gas plants (NSPS, IGCC, AFBC, and BACT) are specific to New England

KEY. NSPS = New source performance standards, IGCC = Integrated gas combined cycle; AFBC = Atmospheric fluldlzed bed combustion,BACT = Best available control technology.

SOURCE Paul Chernlck and Emily CaverhN, PLC, Inc , “The Valuatlon of Externalities from Energy ProductIon, Delwery, and Use: Fall 1989 Up-

date, ” A Report to the Boston Gas Co , Dec. 22, 1989.

The study is specific to the Federal Republic of The study explicitly compares renewable ener-Germany. However, it is worth considering be- gy resources, such as solar and wind, with conven-cause it is widely cited and generated substantial tional energy sources, such as coal and nuclear. Itinterest in the United States when it was released. focuses on costs in the following categories: envi-Its methodology is explained fairly carefully in ronmental effects, subsidies, depletion of nonre-the text of the study, and Hohmeyer maintains the newable resources, and public expendituresgeneral approach is valid for any market-based (R&D support, induced expenditures, and subsi-economy. dies).

.


Envirwwnental effects by plant type

Plant Cost, DM/kWh (1982) Cost, ¢/kWh (1990)Fossil fuels 0.0114-0.0609 0.78-4.153Nuclear 0.0120-0.1200 0.82-8.18Solar 0.0044 0.30Wind O.0001 0.007

NOTE: Values in 1982 Deutsche Marks are reported in the study. Values in 1982 cents were converted using a conversion rate of 2DMn — a rough

value suggested by Hohmeyer during presentations on the study. Values m 1990 dollars are adjusted using the consumer price index. Values are

specific to the Federal Republic of Germany. Values for some classes of effects were not estimated. Estimates for nuclear reactors excludes breed-

er reactors.

Values presented here are for environmental costs only, Estimates of public expenditures and resource depletion costs that are included m thestudy are not included in this table.

SOURCE: Olav Hohmeyer, Social Costs of Energy Consumption: External Effects of Electricity Generation in the Federal Republic of Germany(Berhn, Germany: Sprmger-Verlag, 1988).

Its cost estimates are based on several sources.Some estimates come directly from other studiesthat value specific categories of effects (e.g., hu-man health effects of air pollution). Other esti-mates involve direct calculations based on dam-ages (e.g., estimating the probability of, andhealth effects from, a nuclear accident and multi-plying by the monetary value of a life). Finally, afew estimates involve the costs of mitigating envi-ronmental damages (e.g., the costs of avoiding theeffects of sea level rise brought on by globalwarming).

The study explicitly notes several classes of en-vironmental costs are not quantified. These in-clude “psycho-social” costs of deaths and illness,health care costs, species loss, environmental ef-fects of intermediate goods used to produce andoperate energy systems, some costs of climaticchanges, environmental costs of routine operationof nuclear plants, and aesthetic and land-use ef-fects of renewable energy. The author contendsthat data gaps and uncertainties (which preventedsome effects from being quantified or monetized)placed renewable energy sources at a disadvan-tage.

Table 2-7 summarizes the quantitative results

of Hohmeyer’s study. Overall, the study estimatesthat the environmental costs of coal and nuclearpower are substantially larger than those of solarand wind power. The report notes that the quanti-tative results should be interpreted as a firstapproximation that can be useful for policy. Fur-ther, the report claims that where uncertainty ex-isted, the assumptions were least favorable to thereport’s eventual conclusion (that the environ-mental costs of renewable sources are consider-ably lower than those of conventional sources).

I Bonneville Power AdministrationThe Bonneville Power Administration (BPA)study was undertaken to comply with the provi-sions of the Pacific Northwest Electric PowerPlanning and Conservation Act, passed in 1980.The act requires the Bonneville Power Adminis-tration and the Northwest Power Planning Coun-cil to pursue a planning process that gives priorityto cost-effective energy options when planningnew energy generation capacity. The act requiresthat evaluations of cost-effectiveness includequantifiable environmental costs that are directlyattributable to energy conservation measures ornew energy resources.28

zs~is same act motivated a coalition of environmental, labor, ratepayer, and citizens’ groups to produce a separate s~dy (see Shuman and

Cavanagh, below).


By plant typePlant

Coal

OilCombustion turbine

Natural GasCombustion turbine

Nuclear

Hydroelectric

Biomass

Municipal Solid Waste

Geothermal

Solar

Wind

0.064-0.956

0.03

0.0870.000837-0.0126

0.769-1.074

-0.011-0.49

-3,18-41.664

0-0.0188

0

0

0.072-1.081

0.04

0.1080.001142-0.0172

1,049-1,465

-0.013-0.56

-3.66-47.9852

0-0,0217

0

0

The study consists of a set of six semi-indepen- coal (both a generic and a site-specific analysis),dent studies, completed over a period of five years oil and natural gas (fueling combustion turbines),by three different contractors: ECO Northwest, nuclear, hydroelectric, solar, wind, geothermal,Nero and Associates, and Biosystems Analysis.29 biomass, and municipal solid waste. The quantita-The studies covered 10 different energy sources: tive results of the study are given in table 2-8.


Although the studies are similar in the broadoutlines of their methodology, they vary substan-tially in a number of factors, including the emis-sions considered and the specific valuationapproaches used. As a result, the cost estimates as-sociated with the energy sources cannot becompared with each other in the same way as esti-mates made by other studies.

| Shuman and CavanaghThe Shuman and Cavanagh study was prepared in1982 by Michael Shuman and Ralph Cavanagh ofthe Natural Resources Defense Council. It wasprepared as part of a larger report-a comprehen-sive proposal for future power development in thePacific Northwest-sponsored by the NorthwestConservation Act Coalition, an umbrella organi-zation for 38 environmental, labor, ratepayer, andcitizens’ groups in the Pacific Northwest.30 Theenvironmental cost estimates are contained in ap-pendix 2 of the larger report.31

The study examines some of the most signifi-cant environmental impacts of five different ener-gy options: coal, nuclear, wind, solar waterheating, and household weatherization. It esti-mates costs for occupational and public exposureto emissions; property and crop damage fromemissions; occupational and nonoccupational ac-cidents in extraction, transportation, and genera-tion (including catastrophic nuclear accidents);and nuclear proliferation. The study does not ad-dress a variety of potential environmental costssuch as water consumption, recreation losses, fishand wildlife mortality, aesthetic damage, and im-pacts from transmission and distribution facili-ties.

A summary of the study’s quantitative findingsis shown in table 2-9. Overall, the study estimatesthat the environmental costs of solar, wind, andweatherization are less than one-tenth of those as-

sociated with coal and nuclear. The authors be-lieve their analysis to be conservative-theassumptions made in the study are least favorableto the eventual conclusions of the study (that coaland nuclear have high environmental costs rela-tive to solar, wind, and conservation).

The study’s explicit aim is to compare renew-able sources of energy, such as solar and wind,with conventional sources such as coal and nu-clear. The study’s estimates of solar and wind weredone largely in a relative way. For example, thehealth impacts of solar and wind were estimatedby using the estimate for nuclear (excluding acci-dents, radon emissions, and proliferation). Thisdecision reflected the authors’ belief that the pri-mary environmental costs of solar and wind weredue to the construction of a large energy-produc-ing facility and that those risks were similar fornuclear, solar, and wind. The study assumes thatfew environmental impacts are reflected in theeconomic costs of energy use, and that most envi-ronmental costs should be treated as economic ex-ternalities.

In their analysis, Shuman and Cavanagh felt itwas best to preserve uncertainties in the range ofestimates offered, rather than in what classes ofenvironmental costs were included. As a result,they quantify environmental costs some otherstudies typically leave out. For example, esti-mates of coal environmental costs include thehealth effects and property damage resulting fromclimate change. These effects account for morethan half of the total costs at the high end of therange that Shuman and Cavanagh give for coalpower. Similarly, estimates of nuclear environ-mental costs include the health effects and proper-ty damage resulting from nuclear accidents, radonrelease, and weapons proliferation. These effectsaccount for more than 99 percent of the high endof the range given for environmental costs associ-ated with nuclear power.

SoRalph Cavmagh et ~]., A M~el Electric power and Consemation plan for the Pacijc Northwest (Seattle, WA: Northwest Conse!_vation

Act Coalition, November 1982).

31 Shumm and Cavmagh, op. Cit., foomote 7.


By plant type

~Plant Midpoint range Full range Midpoint range Full rangeCoal 2-3 0.03-20.68 3-5 0.05-35.31Nuclear 2-3 0.05-30.24 3-5 0.09-51.64Solar and Wind 0-0.12 — 0-0.20 —

o — o —

COMPARING STUDIESThe final results of environmental cost studiescannot be validated, in the sense of being able tocompare them with some objective reality. Othertypes of studies can, at least in principle, becompared with measurements of actual phenome-na. For example, energy demand forecasts can becompared with actual demand experienced at alater date; models that estimate environmentaltransport of pollutants can be compared with mea-sured concentrations of those pollutants. In con-trast, environmental cost studies produce finalresults that cannot be compared with anything ex-cept results of other studies.

The difficulty with validating environmentalcost studies places special importance on the abil-ity to compare the results of several studies. Thissection discusses several conclusions based on acomparison of the studies reviewed in this chapter.

| Estimates are Not IndependentNone of the studies summarized above containonly original research. All of the studies assemblesmaller studies of individual components such asthe health impacts of particulate, the value at-tached to a human life, and the willingness to payfor pollution-free wilderness .32 In addition, some

analysts adapt calculations used in other studies tosuit their own purposes. Studies nonetheless re-quire substantial work on the part of their authors:they must develop an overall structure for thestudy; they must locate, critique, and select origi-nal studies; and they must combine those studiesin a rigorous and defensible way.

This prevailing approach of assembling small-er pieces means that each study does not representan independent estimate of environmental costs.The estimates, assumptions, and methods of onestudy are often used in subsequent studies, albeitin modified form. The body of literature on envi-ronmental costs thus represents an evolving set ofrelated estimates rather than a set of completelyindependent ones.33

In addition, environmental cost studies are notalways estimating the same thing. Each study hasits own definition of what constitutes an environ-mental cost and its own assumptions about howthe cost should be estimated. As a result, any twostudies may actually be estimating quantitieswhose definitions only partially overlap.

These features of environmental cost studieshave important implications for how the studies’quantitative estimates are used. When viewing aset of quantitative estimates, there is a temptation

321n a few c~s, Me s~dies conduc[ed origina] research to supplement the other, smaller studies that they assembled to estimate environ-

mental cost. For example, the BPA site-specific hydroelectric study conducted original valuation research.

33~is should not ~ cons~~ to mean, necessmi]y, that the externalities literature is converging on a single set of estimates or mat more

recent studies are always superior to older ones.


Studies using as a major categorizationMethod Examples methodEnergy source Coal, oil, nuclear, photovoltaics Pace, Tellus, Chernick and Caverhill;

Hohmeyer, BPA, Shuman and Cavanagh

Activity Mining, transportation, fuel processing, BPA (coal), Shuman and Cavanaghgeneration, waste disposal, energy use

Emission S02, C02, NOX, particulate, heat, noise Pace, Tellus, Chernick and Caverhill

Impact Human health, quality of life, climate, flora, Hohmeyer, BPA (coal and hydro), Shumanfauna and Cavanagh

Manifestation Species extinction, global warming, cancer Shuman and Cavanagh

NOTE: It maybe possible to retrospectively apply different categorization schemes to published studies based on data they contain. However, for a

study to be listed in the rightmost column, the method must be used explicitly in the study to organize the reported results, The DOE/EC and New

York State studies are excluded because they are not yet completed,


simply to average the values, assuming that eachvalue is an independent estimate of the same quan-tity. These conditions do not hold for the environ-mental cost estimates discussed in this chapter,and the estimates should not be averaged. Instead,individual studies need to be examined and theirestimates compared.

| Studies Categorize Costs DifferentlyUnfortunately, interstudy comparisons are oftenproblematic. Environmental cost studies employa wide variety of methods for categorizing envi-ronmental costs (see table 2-10). Each methodprovides a different view of environmental costs.A single activity, such as the emission of carbondioxide from a coal plant, can be categorized bymany different characteristics, including the me-dium of the emission (air), the phase of the fuelcycle (generation), and the energy source (coal).

The differing categorization schemes em-ployed by different studies make comparisons dif-ficult. Nearly all studies categorize results byenergy source (e.g., coal, nuclear, and hydroelec-tric). However, the components that make upthese overall estimates are important to examine,

and this is made substantially more difficult whenthe components are reported using different cate-gorization schemes.

For example, the Pace study reports environ-mental costs associated with particular emissions(e.g., CO2, SO2, NOx particulate) and then com-bines these with quantity estimates to estimate theenvironmental costs associated with each fossilfuel energy source (e.g., coal, oil, natural gas). Incontrast, the BPA generic coal study categorizeseffects by impact (e.g., human health, crops, live-stock, timber, materials, ecosystems, and visibili-ty).

If studies use a common framework, compari-sons are easier. Analysts and readers couldcompare several studies side by side to understandtheir similarities and differences. In addition, aconsistent framework allows researchers to alteran existing study to incorporate new data orassumptions. However, no categorization of envi-ronmental costs fits perfectly for all environmen-tal effects and all technologies.34

Differences in categorization are understand-able, given the diverse conditions and purposesunder which the studies were assembled. How-

34Stirl~g, op. cit., foomote 4.


ever, the differences force policy makers to viewexisting studies as independent units of analysis,rather than flexible tools whose assumptions andnumeric values can be interchanged to fit thepolicy makers’ particular circumstances or inter-ests. In contrast, the results of at least one pendingstudy (New York State) will be embodied in com-puter software, which will allow many parametersof the study to be changed easily, although its ba-sic structure will remain fixed.

| One Effect Category Often DominatesAlthough studies categorize environmental ef-fects quite differently, a single category dominatesmost estimates of environmental cost. Specifical-ly, in the eight studies reviewed by OTA, 55 quan-titative estimates were produced that were brokendown into several categories of effects. Of these,46 (84 percent) had single categories that ac-counted for the majority (i.e., 50 percent or more)of the total estimate.35

For example, Pace makes estimates for 15 dif-ferent generating technology and fuel combina-tions. Within each estimate, the study categorizeseffects by emission (e.g., S02, NOX, particulate,and C02). Pace produced an estimate of 4.72cents/kWh for the environmental cost associatedwith coal plants meeting the new source perfor-mance standards (NSPS). In the case of this esti-mate, the effects associated with S02 accountedfor 2.95 cents/kWh, or more than 60 percent of thetotal estimate.

There is some consistency in the effects thatdominate. Three studies (Pace, Tellus, and Cher-

nick and Caverhill) estimate costs for fossil fuelsand categorize effects by emission. When a singlecategory dominates in an estimate from thesestudies, the category is either S02 or C02. Similarconclusions are difficult to draw for nuclear andrenewable energy sources because the studies areoften less specific about how they categorize ef-fects for these energy sources.

This dominance of single effects has importantimplications for policy makers. It points to the po-tential for environmental cost studies to be usedfor setting priorities. Although studies with differ-ent frameworks of assumptions may differ in theirquantitative estimates of environmental costs, ifthere is agreement on dominant effects then thestudies may provide valuable guidance for wherelegislative and regulatory efforts should be fo-cused. Important questions of priorities wouldstill remain, of course, including how to balanceenvironmental programs against other importantfederal priorities, but focusing environmental ef-forts effectively is still an important victory.

| Cost Estimates are Highly VariableIn some cases it is possible to compare results ofdifferent environmental cost studies .36,37 Despitethese differences in categorization, rough compar-ison of results is still possible (see figures 2-2 and2-3). Comparing these results indicates wide vari-ation in cost estimates. Some estimates of envi-ronmental costs are nearly zero. In other cases,estimates are as high as 10 cents/kWh-costs thatare larger than the electricity rates that averageconsumers currently pay. The wide variation in

sjNone of tie studjes acma]]y make this calculation. The OTA numbers are derived by employing the primary categorization method used

by each study. In some cases, not all of the estimates in the particular study were counted. For example, the BPA hydro study contained a widerange of estimates, but only two (the high and low estimates) were included in the 55 estimates used for this calculation. Similarly, estimates

that include only a single category of effects were not counted. For example, Hohmeyer’s estimate of nuclear environmental costs is basedsolely on accidents. This estimate was excluded from the 55 estimates used in the calculation.

3GNear]y all studies pr~uce resul~ categorized by energy source (e.g., coal, nuclear, and solar). Even these results are categorized ~d

reported indifferent ways. Hohmeyer presents one overall estimate for “fossil fuels,” three studies (BPA, Shuman and Cavanagh, and Chemickand Caverhill) make distinct cost estimates for each fossil fuel source (coal, gas, and oil), and the remaining completed studies (Pace and Tellus)produce further distinctions among several different combinations of combustion technology and fuel.

37As noted ear]ier, some ~a]yses have attempted to adjust for differences among the studies attributable to different teChIIiCd aW.U@ionS

such as the heat rates and emission factors of power plants. For example, see Koomey, op. cit., footnote 10.


CoalPace : ; ~ :

Tellus : -Chernick & Caverhill : ~ :

Hohmeyer : ~ :BPA :

Shuman&Cavanagh : :

oilPace : : ~

Tellus : ~ :Chernick & Caverhill : ~ ;

Hohmeyer ~ - ;BPA ❑

Natural Gas .

Pace : :Tellus : ~ ;

Chernick & Caverhill ~ - :Hohmeyer : ~ ~

BPA ❑

Nuclear

Pace : ; ;Hohmeyer :

B P A

Shuman & Cavanagh : : ~

o 5 10

Estimated environmental cost (¢ per kWh)

❑ Point estimate

Several point estimates E s t i m a t e d r a n g e

NOTES: See text for full description of the difficulty of comparing environmental cost estimates, When several point estimates are gwen, each esti-

mate is for a different specific generating technology (e.g., combustion turbine) or specific fuel (e g., oil with 1 % sulfur content). Hohmeyer gives

only one estimated range for all fossil fuels (coal, oil, and gas). The Shuman and Cavanagh estimates are the “best estimate” ranges, Costs are gwen

m 1990 cents per kllwatt-hour. Not all results are shown for each study.

SOURCE: Office of Technology Assessment, 1994


Pace

Coal

Oil

Natural GasNuclear

Tellus

Coal

oil

Natural Gas

Chernick & CaverhillCoal

Oil

Natural Gas

Hohmeyer

FossilNuclear

BPACoal

Oil

Natural Gas

Nuclear

Shuman & Cavanagh ,Coal : : ~

Nuclear : : ~

I , 10 5 10

❑ Point estimate

~ Several point estimates~ Estimated range

NOTES See text for full description of the ddflculty of comparing environmental cost estimates When several point est[mates are given, each esti-mate IS for a different speclflc generating technology (e g , combushon turbine) or speclflc fuel (e g., 011 with 1 YO sulfur content). Hohmeyer gwes

only one estimated range for all fossil fuels (coal, 011, and gas) The BPA estimates should not be directly compared because the mdwldual studies

used different methods and assumptions. The Shuman and Cavanagh esttmates are the “best estimate” ranges. Costs are gwen m 1990 cents perkilowatt-hour Not all results are shown for each study


quantitative estimates demonstrates there is noconsensus about cost estimates among currentlypublished environmental cost studies.

I Cost Estimates are Highly UncertainDue to a variety of analytical difficulties and un-knowns, all of the studies are cautious in their pre-sentation of numerical estimates. First, somestudies present broad ranges of possible valuesrather than specific numeric estimates (oftencalled “point estimates”). For example, Hohmey -er, BPA, and Shuman and Cavanagh all use thismethod. Shuman and Cavanagh even go so far asto produce a “midpoint range” indicating valuesthey think are most likely, and a “full range” forcoal and nuclear indicating values they think arepossible. Where ranges are presented, they areoften quite large. The Hohmeyer high and low es-timates vary by a factor of about five in the caseof fossil fuels and 10 in the case of nuclear. Shu-man and Cavanagh’s full range high and low esti-mates differ by more than a factor of 500.

Second, some studies produce a point estimateand then attempt to evaluate the uncertainty asso-ciated with that estimate. Where uncertainty isevaluated, it is often quite large. For example, sev-

eral of the BPA studies evaluate the uncertainty tobe as large or larger than the estimate itself, indi-cating that the actual cost could be nearly zero oras much as twice the point estimate.38

Finally, most studies are careful to label theirresults “preliminary.” This is due to various datagaps, uncertainties, methodological disputes, andthe early stage of development of environmentalcost analysis. Based on uncertainty estimates andcautions contained in the studies, and based on thelarge differences in the results of different studies,prospective users of environmental cost studiesshould assume that all estimates are highly uncer-tain and preliminary.

| ConclusionMany of these issues—independence, categoriza-tion, variability, and uncertainty-are closely re-lated to the valuation phase of environmental coststudies. This phase takes quantitative estimates ofenvironmental impacts and attempts to valuethem in monetary terms. Other study phases alsobear on the issues discussed above, but valuationintroduces additional dimensions and complica-tions. The different methods of valuation are dis-cussed the next chapter.

38 SWcifjcally, the cost estjma~s for coal, oil, and natural gas are accompanied by uncertainty estimates. For coal, the swtid deviation

is estimated to be equal to the estimate itself. For oil and gas, the two standard deviations are estimated to be equal to the estimate itself. Thestandard deviation is a statistical quantity indicating the variability of an estimate. For a normal (or “bell shaped”) distribution, approximately95 percent of the possible values lie within two standard deviations of the mean value (the center of the distribution).

Methods forValuing

Environmentalcosts

v aluation is a method used in environmental cost studies toassign monetary values to the environmental effects ofelectricity production. Examples include finding the val-ue individuals attach to reducing the risks of coal mining,

improving urban air quality, or assuring clear visibility.Valuation is a particularly important method to understand. Al-

though environmental cost studies raise many other importantmethodological issues in addition to valuation (e.g., human riskassessment, extrapolation from animal studies, and estimates oftransport and deposition of environmental pollutants), thesemethods have been well reviewed by other reports and are amena-ble to further scientific research. In contrast, disputes about valua-tion methods are relatively new to policy makers and appear lessamenable to resolution by additional research. Differing assump-tions of analysts strongly affect the choice to use monetary valua-tion at all, the choice of valuation method, and the way thatmethod is applied. Because there is little or no consensus on theseassumptions, valuation lies at the root of much of the controversyover the study and use of environmental costs.

At least five valuation methods are used in current environ-mental cost studies. ] Market valuation uses existing marketprices to estimate damages. Contingent valuation elicits esti-mates from consumers by the use of survey techniques. Hedonicvaluation examines existing market prices to detect implicit valu-

I All of ~ese techniques assume a goal of monerary valuation. This almost always has

been the goal of environmental cost studies. In theory, however, a study could analyze the“costs” of electricity generation in a more general, noneconomic sense. For additional dis-cussion, see the section in chapter 4 on quantification and monetization.

I 37


ation of environmental factors by consumers.Control cost valuation examines existing regula-tory decisions to detect implicit valuation of envi-ronmental factors by government regulators.Mitigation cost valuation examines the cost of re-pairing environmental damages to estimate thevalue of preventing such damages from occurring.Each valuation method is detailed in the followingsections. 2

MARKET VALUATIONIn some cases, environmental impacts from ener-gy production affect things that are bought andsold, and thus have a market price. For example,hydroelectric facilities can reduce salmon popula-tions by hindering the upstream migration of adultsalmon to spawn and the downstream migration ofjuvenile salmon toward the ocean. One method ofestimating the cost of a reduced salmon popula-tion is to multiply the reduction by the marketprice of salmon.

Market valuation is used in several studies. Forexample, the Pace study uses market prices to val-ue the corrosive impact of air pollution on materi-als and the potential property damage from a largenuclear accident. Similarly, the Bonneville PowerAdministration (BPA) studies use market valua-tion in several contexts, including valuing im-pacts on agriculture, fur trapping, and commercialforestry.

Market valuation has the advantage of relyingon data that are readily available and fairly un-controversial. Care must be taken to find pricesthat apply to the specific losses associated withenergy generation (e.g., prices appropriate to thespecific crops grown where emissions have theirgreatest impacts), but this difficulty is fairly easyto overcome.

Market valuation also has some subtle pitfalls.Market costs may be distorted because, like ener-

gy prices, they may not include all relevant costs.Many individuals would contend that forests havehigher value than the commercial value of the tim-ber, and that the value of some animal life is higherthan the market price of their pelts. There is nogenerally accepted method to account for these ef-fects, and attempting to do so could involve ananalysis as large as the original environmentalcost study. As a result, most studies that use mar-ket valuation do not attempt to adjust market pricedata to account for them.

The major limitation of market valuation is thatnot all environmental impacts of energy affectthings that are bought and sold in markets. Thevalue of items such as visibility, preservation ofendangered species, and health impacts cannot beestimated using market valuation.3 This limita-tion has led to the use of several other valuationtechniques.

HEDONIC VALUATIONHedonic valuation examines existing marketprices for evidence of the value placed on particu-lar environmental effects. For example, one wayto estimate the value of a recreational area is to ex-amine the travel costs borne voluntarily by thosewho visit the area. Similarly, one way to estimatethe value associated with personal safety is tocompare the wages of workers in hazardous oc-cupations with those in occupations that are safer,but otherwise similar.

Several studies use hedonic valuation to esti-mate the value of environmental impacts. For ex-ample, the BPA studies for coal, oil, and gas useestimates that infer the value of visibility fromproperty values. Pace uses those estimates as well.Similarly, the BPA hydroelectric study uses esti-mates based on the travel costs of hunters to valuethe loss of deer in the area to be flooded by a dam.

z~is chapter is memt t. in~duce reade~ to various valuation techniques, not to be a detailed methodological critique. Detailed examina-

tions of each method can be found in footnoted references in each section.

S“Visibility” refem t. the presence or absence of haze often produced by burning fossil fiel. Visibility problems are most commonly en-

countered over urban areas, but also have become an issue in scenic vistas such as those around the Grand Canyon.

Chapter3 Methods for Valuing Environmental Costs 139

Like market valuation, hedonic methods havethe advantage of deriving from choices made byconsumers. This avoids problems that may stemfrom inaccurate self-reporting--i.e., problemscaused by individuals who say they place a partic-ular value on an environmental impact, but whodo not act consistently with that belief (seethe dis-cussion of contingent valuation below).

Unlike market valuation, however, hedonicmethods must adjust for all factors that influenceprice other than the object of study. For example,to determine the value of visibility by using prop-erty values, analysts must account for all the otherreasons property values may vary (e.g., quality ofhome, access to services, proximity to work-places). Although statistical techniques exist toaccount for these other influences, there are a greatmany practical and theoretical pitfalls to avoid.

In addition, prices may not accurately reflecthow people value environmental effects. For ex-ample, wage differentials may not accurately re-flect risks to workers. First, workers may beunaware of risks they face, and they may not de-mand higher wages to account for increased risk.Second, workers may be unable to bargain effec-tively to make their wages adequately compensatethem for their risks. Barriers to job mobility maylimit the opportunities of high-risk workers tochange positions or occupations.4

CONTINGENT VALUATIONContingent valuation (CV) consists of surveyingindividuals directly about the value they attach toenvironmental damages. A typical survey pro-vides a respondent with information about a hypo-thetical program that will prevent future harm tothe environment. The respondent then is askedhow much he or she would be willing to pay, indi-vidually, to bring the program into existence. The

questions can be couched in several differentforms, such as a direct question, a series of ques-tions about hypothetical economic tradeoffs, or areferendum—asking respondents whether theywould vote for a particular tax increase to fund theprogram. In each case, the goal is to elicit an eco-nomic value that the individual attaches to the pro-gram, in as realistic a way as possible.

CV could be used to estimate willingness topay for almost anything, including goods that areactively bought and sold in markets. However, thetechnique’s greatest use is for estimating the valueof goods and services that are not bought and soldin markets. Specifically, CV can be used to esti-mate what are called non-use values (see box 3-1 ).

CV has been actively studied for about 20years. In the past five years there has been a dra-matic increase in the number of academic studiesand presentations on the topic,5 and several com-prehensive texts exist. b CV also has been em-ployed in a variety of environmental cost studies.For example, the BPA hydroelectric study esti-mates the value of old-growth forest impacts bycontingent valuation. The BPA oil and gas studyuses evidence from contingent valuation studiesto estimate the value of visibility. This estimate,in turn, is used by Pace. Finally, both the DOE/ECand the New York State studies expect to make useof CV to estimate the value of several environ-mental impacts that cannot be valued easily in oth-er ways.

CV has some distinct advantages over othermethods. First, it is the only method that can eval-uate non-use values. As noted in box 3-1, non-usevalues can bean important source of environmen-tal cost data. Second, citizens, not experts, pro-duce the evaluation. Proponents of CV are quickto point out that the method has a strong undercur-rent of democratic decisionmaking. Private citi-

gjo~ p. HO1&en, Inlegraled ASSeS$rneW for Energy-Related Environmental Stan&rds: A Summary of I$sues ad Fj~ings, LBL- 12779

(Berkeley, CA: Lawrence Berkeley Laboratory, October 1980).

5Kenne~ pUTOW et al., “Report of the NOAA Panel on Contingent Valuation,” J~. 11, 1993.

6 For example, sm Ro~~ C. Mitche]l ~d Rich~d T. Carson, Using Surveys To Value Public GoOdS: The contingent val~tion Method

(Washington, DC: Resources for the Future, 1989).


Some environmental resources are regularly used by individuals or groups. For example, wildernessareas provide recreation for hikers and hunters—recreation that may be curtailed if the areas areharmed. The worth of this recreation is referred to as a “use value, ” because individuals benefit fromactually using the wilderness area. Attaching monetary figures to use values can be challenging, butinvolves well-recognized principles in economics.

In addition to use values, economists have come to recognize that a person may value something,

even if he or she does not intend to use it. This “non-use” value, also known as “passive-use” value,measures the worth ascribed to something that is not used. Non-use values have been divided into atleast three categories: 1) option value-the value of preserving a resource for potential future use. Forexample, even though someone may not be considering an immediate visit to the Grand Canyon, he orshe may wish to preserve the option for a future visit; 2) bequest value-the value of preserving a re-source for future generations. Even though an individual may never expect to visit the Grand Canyon,he or she may wish to preserve that option for future generations; 3) existence value-the value of“knowing the resource exists. ” Some individuals attach a value to the existence and protection of a re-source, even if they never expect anyone to use it.

Non-use values have engendered substantial controversy, One reason is the difficulty of assessingthem. Use values can be measured by an individual’s behavior-how far a person travels to use a rec-reation area, for example. By definition, non-use values involve few outward signs. Surveying individualsabout the value they place on environmental resources-called contingent valauation (CV)-generally isrecognized as the only method of assessing all types of non-use values. Because the results of CV are

difficult to check against behavior, observers are skeptical of their resultsAnother focus of controversy is the claim that non-use values can represent moral and ethical con-

cerns. Some economists claim that individuals’ responses to CV surveys represent more than just pref-erences that are commonly linked with market choices (e.g., tastes and fashion); in addition, they alsorepresent moral and ethical beliefs of the individual. Others, such as philosopher Mark Sagoff, arguethat such ethical and political choices are distinct from the preferences considered by economists andcannot be treated in the same way. These writers argue that economic preferences are concerned withpersonal benefit and are best resolved within markets; ethical choices are concerned with communitygood and are best resolved in a more public forum.

To summarize, few participants in environmental cost debates deny

there is substantial disagreement about how to measure non-use valuesrole in public decisions.

that non-use values exist, butreliably and about their proper

SOURCES: Mark Sagoff, “Environmental Economics: An Epitaph,” Resources, No. 111, spring 1993, pp. 2-7; Raymond J. Kopp, “En-vironmental Economics: Not Dead But Thriving, ” Resources, No. 111, spring 1993, pp. 7-1 2; Oak Ridge National Laboratory andResources for the Future, U. S.-EC Fue/Cyc/e Study: &ckgroundhumentto t&@prmch arrcf/ssues, Report No. 1 on the External

Costs and Benefits of Fuel Cycles: A Study by the U.S. Department of Energy and the Commission of the European Communities,

ORNLJ!vl-2500 (Oak Ridge, TN: Oak Ridge National Laboratory, November 1992).

—- —..


zens, not experts who may be detached from theinterests of the public, are asked to value the pro-grams. This puts some of the decisionmakingpower in the hands of those who ultimately willpay for the environmental control and mitigationprograms (through taxes and/or higher productprices).

CV is far from universally accepted, however,and several criticisms have been made. First, re-sults vary with how the questions are asked. Rela-tively subtle differences in wording, in the orderquestions are asked, or in the supporting evidencegiven, can substantially affect the answers of re-spondents. Second, some results are not consis-tent with basic tenets of economic theory.Economists expect that the value of a certainquantity of goods will increase as that quantity in-creases. For example, if someone is willing to paya dollar for an apple, they should be willing to paysubstantially more than a dollar for two apples.Respondents in CV studies have not always be-haved as economists expect. In one study, the av-erage willingness to pay to prevent 2,000migratory birds from dying was as great as that forpreventing 20,000 or 200,000 birds from dying.7

Third, studies sometimes appear to produce un-reasonable answers. Some critics have argued thatCV results should be dismissed merely becausethe implied value of environmental damages,when aggregated on a national level, are unreason-ably large.8 One reason for these large values isthat respondents lack a meaningful budgetconstraint and the need to consider tradeoffs. Al-though respondents might report they are willingto spend $100 to prevent future oil spills, they mayfail to account for all the other environmental pro-grams they might be asked to fund or other, nonen-vironmental uses for their funds. Particularlywhen such responses are hypothetical, as they arein CV, respondents may not meaningfully consid-

er what expense they will forego to pay for sucha contribution. One study estimating willingnessto pay for protecting the Alaskan coast from oilspills showed that estimates varied substantiallydepending on whether such values were discussedindependently ($85) or in the context of overallgovernment spending ($0.29 ).9

Fourth, respondents may give “strategic” an-swers to survey questions that are intended to in-fluence public agencies. A respondent mightbelieve that, by stating a high value, he or she canencourage state or federal agencies to undertakethe programs described in the survey. Alternative-ly, respondents may believe that, by stating a lowvalue, they will reduce or avoid a future tax in-crease to pay for such programs.10

Finally, respondents may not fully understandor trust the information provided by the survey.The responses requested on CV surveys are unliketypical choices made by consumers. Environmen-tal effects have impacts that go far beyond the re-spondent in both time and space. Evaluatingenvironmental effects deals with topics (e.g., ecol-ogy, biology, atmospheric science) that are unfa-miliar to most respondents, and few respondentshave had the opportunity to see the effects of pre-vious choices. Respondents also may not trust thegiven information. They may react based on anoverall belief about environmental reporting (e.g.,“those environmental problems are always exag-gerated” or “the damage always ends up to beworse then we’re initially led to believe”). In anyof these cases, respondents may not be answeringthe question given, and they may not produce anaccurate assessment of their willingness to pay.

To summarize, CV studies are subject to a vari-ety of biases that are potentially troubling,care needs to be taken in the design, conductreporting of studies. However, CV studies

7Amow et al., op. cit., footnote 5.

sFor example, see Chw]es J. DiBona, “Assessing Environmental Damage,” Issues in Science and Technology, fall 1992, pP. 50-54.

andandcan

gcharles River Associates, “Methodological Biases in Valuing Environmental Resource Damage,” CRA Review, December 1992, PP. 1-4.

lOAmow et al., op. cit., fOOmOte 5.

42 Studies of the Environmental Costs of Electricity

produce useful information for evaluating envi-ronmental costs, and CV appears to be the onlymethod to assess non-use values, a potentially im-portant component of these costs.1 1

CONTROL COST VALUATIONControl cost valuation infers the value of environ-mental impacts by examining the pattern of publicdecisions recorded in regulations, laws, and courtrulings. By determining the cost of the controlsmandated by these decisions, and their benefits interms of environmental effects, the dollar value ofthose effects can be estimated. Control cost valua-tion is also termed “shadow pricing” or “revealedpreference” valuation.

For example, the Tellus study uses control costvaluation to estimate the environmental cost asso-ciated with various air emissions, including NOX,SOX, and C02. To estimate each of these costs, theTellus study takes cost estimates for various pollu-tion control technologies whose use is mandatedby federal or state regulation. The study then di-vides these costs by the emissions reductions (inpounds) that the technologies achieve. This cal-culation produces a cost per pound figure that isused as an estimate of the environmental cost perpound of emissions.

The major advantage of control cost valuationis its simplicity. Control costs can be calculatedmerely by dividing the cost of mandated controlsby the emissions reduction achieved by the con-trols. The data for these two numbers are relative-ly uncontroversial and easy to obtain. In contrast,alternative methods require tracing emissionsfrom generation (e.g., S02 from a coal plant),through intermediate pathways (acid rain), toeventual environmental impacts (forest damage).Then the impacts must be valued. That process

introduces many uncertainties and potential anal-ysis problems.

However, analysts point to a variety of failingsassociated with control cost valuation. First, it iscriticized as representing circular reasoning.Many analysts believe one important goal of envi-ronmental cost analysis is to compare the costsand benefits of environmental regulations. If thecost of regulations (i.e., cost of environmentalcontrol technologies) is used to estimate the bene-fits (i.e., environmental costs avoided), then ameaningful comparison of costs and benefits isimpossible. This argument is explored in more de-tail in chapter 4.

Second, control costs can vary widely. Studiesof cost per life saved have indicated large varia-tions in the values implied by the costs and bene-fits of different regulations. Critics of control costvaluation use this variation as evidence of prob-lems with the method. If the values vary so widely,then regulations clearly do not represent a rigor-ous weighing of costs and benefits. However,some supporters of control cost valuation are notso troubled by these variations. Supporters arguethat control costs indicate the minimum costs reg-ulators are willing to impose. Because of this be-lief, studies that use control costs valuation oftenuse the highest cost of control. 12

MITIGATION COST VALUATIONLike control cost valuation, mitigation cost valua-tion attempts to infer environmental costs fromthe costs of responses to environmental damage.In contrast to control cost valuation, however,mitigation cost valuation does not examine costsimposed by current regulations. Instead, it ex-amines prospective mitigation costs under the pre-sumption that additional environmental impacts

1 l~ew conclusions me supported by a review by the National Oceanographic and Atmospheric Administration’s (NOAA) panel on Con-

tingent Valuation. The NOAA Panel’s report gives a variety of guidelines for conducting accurate and useful CV studies. Arrow et al., op. cit.,foomote 5.

Izpaul Chemick and Emily Caverhill, PLC, Inc., “The Valuation of Externalities from Energy Production, Delivery, and Use: Fall 1989Update,” A Report to the Boston Gas Co., Dec. 22, 1989, p. 7.


should be avoided. Mitigation can involve revers-ing damages (e.g., treating diseases or replacingdamaged goods) or intervening between inter-mediate and final environmental effects (e.g.,“liming” mountain lakes to reverse the effects ofacid rain).

Several studies use mitigation costs to estimateenvironmental costs. The Pace study uses mitiga-tion costs to estimate the costs of C02 emis-sions—an area where cost estimates arenotoriously difficult. It examines the costs associ-ated with growing forests to capture and sequestercarbon. Similarly, the Hohmeyer study uses miti-gation costs to estimate the cost of C02 emissions.It estimates the costs of bolstering Germany’scoastal defense works (e.g., dams and locks) toavoid the effects of an increase in worldwide sealevels that are thought to be one effect of globalwarming.

Mitigation cost and control cost valuation bothhave the advantage of simplicity and the disad-vantage of being viewed as involving circular rea-soning (see chapter 4 for details) .13

CONCLUSIONThe differences among valuation techniques havebeen a source of substantial debate and controver-

sy in the analytical community. The differencesinvolve the types of evidence considered. Marketand hedonic methods look at the purchasing deci-sions of individual consumers in actual markets,control cost valuation examines the decisions ofgovernment regulators, and contingent valuationexamines the answers of survey respondents.

Perhaps the most contentious and long-stand-ing debate over valuation methodology has beenbetween supporters of valuation methods that aregrouped under the label of damage costing (i.e.,market, hedonic, and contingent valuation) andvaluation methods grouped under the label of con-trol costing (i.e., control cost and mitigation costvaluation). This debate continues to dominatemany discussions of environmental cost studies.It is covered in greater detail in chapter 4.

The debate over these differences sometimesobscures a basic fact: all valuation approaches in-volve assumptions about the legitimacy and ap-propriateness of different types of evidence. Thesedecisions often depend on questions that are be-yond the scope of an individual study, and insteaddepend on broad policy goals and how environ-mental cost studies are used to support thosegoals. This is the topic of the next chapter.

1 Jone fo~ of mitigation costing avoids the problem of circular reasoning. Studies that examine consumer behaviors intended to mitigate

environmental effects (e.g., purchasing bottled water to avoid drinking potentially contaminated water) can indicate the value they assign toavoiding the environmental effect. However, most use of mitigation costing involves prospective actions intended to keep environmental re-sources in their current condition.

Assumptions in

T

EnvironmentalCost Studies 4

he assumptions underlying any environmental cost studystrongly influence both the overall structure of the studyand its quantitative results. Varying assumptions can in-clude or exclude entire classes of environmental effects

from consideration. For example, the assumption that studiesshould evaluate only relatively certain effects could exclude thepotential effects of C02 emissions on global climate. For effectsthat are included in a given study, different assumptions can leadto dramatically different numerical estimates of the value of thoseeffects. For example, monetized estimates of damage to wilder-ness areas can vary greatly depending on the valuation technique.If a study uses only the commercial value of the area’s timber,then the damage estimate may be quite low; if the study includesnon-use values, recreation impacts, and endangered species im-pacts, then the estimate may be much larger.

Assumptions are an integral part of any environmental coststudy. l This does not mean the studies are intentionally biased.Rather, every environmental cost study is conducted within ageneral framework of assumptions and values. When theseframeworks are the focus of social and political debate, environ-mental cost studies can become the focus of substantial contro-versy—as they have in some cases.

Underlying assumptions are a particular problem in environ-mental cost studies. Estimating environmental costs requires

1 Some studies me more exp]icit than others about identifying their value frameworks.

For example, the Department of Energy/Commission of the European Communities(IXXYEC) study explicitly discusses the basis of the economic framework that it uses. Al-though it does not discuss this framework within the context of competing frameworks, itmakes its own framework reasonably clear.

I

I 45

. — —


using results from many other types of environ-mental studies, including studies of emissionsgeneration, transport, deposition; environmentalimpact; risk assessment; and economic valuation.Because of this broad scope, environmental coststudies face a vast array of vexing problems thathave emerged in the past two decades of researchin biology, engineering, economics, and socialscience (see table 4-l).

Because environmental cost studies employ theresults of these smaller studies, they necessarilytake on their assumptions and uncertainties, andthen add assumptions and uncertainties of theirown. As a result, studies of environmental costsare likely to require a larger number of assump-tions, to yield results with greater uncertainties,and to engender more controversy than studies ofmore limited scope.

There is no clear agreement about the most rele-vant set of assumptions, and this lack of agree-ment is reflected in how actual studies areconducted. Different environmental cost studiesuse different assumptions about how to define en-vironmental costs, how to value environmental ef-fects, and how to handle uncertainty. The lack ofagreement is discussed in numerous critiques ofpublished studies. Economists, ecologists, regu-lators, and others frequently argue over the propri-ety of assumptions made in specific studies.

Several existing reviews of environmental coststudies examine these assumptions at some levelof technical detail.2 These critiques are useful toanalysts who are interested in improving themethodology of future studies and to policy mak-ers who wish to evaluate the findings of an indi-vidual study. However, from the standpoint ofusing these studies in federal policymakingimportant to realize that all environmental

it iscost

studies make assumptions that affect their results,and these assumptions often involve fundamentalquestions that lie within the purview of policy-makers rather than analysts. These questions in-clude:■ What is the goal of environmental policy? Envi-

ronmental cost studies are most frequently as-sociated with the goal of economic efliciency.Other implicit and explicit goals assumed inenvironmental cost debates include equity, sus-tainability, and protection of health and safety.What is the role of environmental cost studiesin energy policy? These studies can be used toquantify economic corrections to energy mar-kets, facilitate compensation for environmentaldamages, or guide government regulation toprotect health or encourage sustainability.How is value determined? Valuation can bebased on consumers acting in markets, legisla-tors and regulators acting in political systems,scientists studying ecological systems, or gov-ernment oflicials acting in legal settings.

A few reviews of environmental cost studiesdiscuss the studies’ underlying assumptions andvalues. 3 Many of the concepts in those reviews arediscussed in this chapter. In addition, several otherreviews of related areas have concluded that dif-ferences in assumptions underlie many of the dis-putes over quantitative studies of environmentalissues (see box 4-1 ). Reviews of the health effectsof air pollution, the economics of salmon pres-ervation efforts, and the risks of the herbicidealachlor all identify the importance of studies’ un-derlying values and assumptions.

Despite the findings of these reviews, explicitdiscussion of the fundamental questions that un-derlie the assumptions of environmental coststudies, and even a recognition that these ques-

2For ~xample, ~, Ri~h~d L. ~tinger et a],, Pace university (kiter for Environmental ~gal Studies, EWirOnt?W’IIUl COSZS d~k’cr~ici~

(New York, NY: Oceana Publications, 1990); Staff of the Federal Energy Regulatory Commission, Reporf on Section 808: Renewable Energy

and Energy Conservation Incentives of the Clean Air Act Amendments of 1990 (Washington, DC: December 1992).

3For exmp]e, ~~ew Stir}hg, “Regulating the E]ecticity Supply Industry by Valuing Environmental Effects: HOW Much is the Em~ror

Wearing, ’’Futures, December 1992, 1024- 1047; John P. HoMren, lntegratedAssessment for Energy-Related Environmental Standards:A Sum-

mary of Issues and Findings, LBL-12779 (Berkeley, CA: Lawrence Berkeley Laboratory, October 1980).

— .-

Chapter4 Assumptions in Environmental Cost Studies 147

Fields Selected rasearch araas

Economics Determinants of value; methods of discounting.

Psychology Perceived risk; accuracy of survey responses.

Biology and toxicology Extrapolation of human health effects from animal studies.

Epidemiology Health effects of pollutants.

Ecology Systemic effects of pollutants; determinants and importance of biodiversity.

Sociology and anthropology Cultural variations in value ascribed to environmental resources.

Atmospheric science Transport and deposition of pollutants; long-term effects of carbon dioxide emissions.

SOURCE Off Ice of Technology Assessment, 1994

tions are important, is often absent from environ-mental cost analysis. Instead, the studies deal withthe details of implementing the assumptions (e.g.,the sources of data, the calculation techniques,and the intermediate results). Even if a study’s au-thors discuss its assumptions at length, a technicalanalysis is unlikely to resolve the issues involved.In general, environmental cost studies reflect,rather than address, the political and social de-bates over these questions.

This chapter illustrates how many of the mostcontroversial methods and assumptions of envi-ronmental cost studies are related to more funda-mental questions. It discusses several major issuesin environmental cost analysis and presents anoverall framework to help organize and explaindifferent sets of assumptions.

ISSUES AND UNDERLYINGASSUMPTIONSDecisions about valuation and other methodolo-gies do not take place in a vacuum. Such decisionsare made in the context of assumptions about thegoals of policy, the intent of the study, and whatvaluation is intended to achieve. Such assump-tions become clearer in the context of debates over

particular methodological issues. This sectiondiscusses selected issues, outlines the positionstaken by different analysts, and identifies assump-tions that lie at the core of each debate. Althoughother important issues may exist, the issues dis-cussed here illustrate the importance of assump-tions to the conduct and findings of environmentalcost studies.

| Quantification and MonetizationEnvironmental cost studies inevitably consider acollection of disparate effects. For example, eval-uating the environmental costs associated withcoal may involve combining occupational deathsand injuries from coal mining, chronic healtheffects of power plant emissions, ecological dam-age from global warming, property damage fromacid rain, and resource depletion resulting fromburning fossil fuels. Without a common set ofunits, these effects cannot easily be comparedwith each other or with the costs of controllingthem-decisionmakers are left comparing “ap-ples and oranges.”4

The approach generally taken in environmentalcost studies is to express all environmental effectsin numeric form (quantification) and then to con-

g~ere is a growing Ny of work a~u[ decisions invo]vtig multiple objectives that c~ot be easily compmed (e.g., see Ralph L. KeeneY~

Decisions Wifh Multiple Objecri\es: Preferences and Value Tradeofls (Cambridge, England: Cambridge University Press, 1993). Several utili-ties are considering techniques that involve weighting and ranking impacts without explicit monetization (Robert L. San Martin, U.S. Depart-ment of Energy, personal communication, July 7, 1994). However, existing environmental cost studies do not employ these techniques.


Several independent studies have concluded that values and assumptions are fundamental to quan-titative evaluations of environmental effects. Some of these studies are directly relevant to energy be-cause they deal with a subset of the issues considered in environmental cost studies of energy (e.g., airpollution from fossil fuels and salmon losses from hydroelectric generation). To the extent that thesesmaller studies are strongly influenced by values and assumptions, then the results of energy studieswill be as well. Other studies deal more generally with environmental effects of non-energy activites(e.g., alachlor),

The Health Benefits of Air Pollution ControlIn 1989, the Congressional Research Service (CRS) undertook an extensive review of the health

benefits of air pollution control within the context of the Clean Air Act (CAA). The study involved a reviewof literature, six CRS-contracted assessments of current knowledge and methods, and a colloquium atwhich the authors and commentators discussed the studies and their implications. The study con-cludes:

. . . it is not currently feasible to produce an unambiguous evaluation of the health benefits of controlling air pollu-

tion . . . Estimates vary greatly, for two primary reasons: First, scientific uncertainties and data limitations neces-sarily result in estimates based on interpolations, projections, and assumptions. Second, the different profes-

sional orientations, personal values concerning environmental quality, and varying interpretations of the goals

and procedures of the CAA lead assessors to differing views on what benefits mean, how they can be validly

estimated, and what assumptions to make in the face of major uncertainties.

Endangered Species Act and the Pacific Northwest SalmonSince 1984, researchers at Resources for the Future (RFF), a Washington-based independent re-

search organization, have been studying the effects of hydropower on salmon populations in the PacificNorthwest. In summarizing some of RFF’s recent experience with economic assessments of the costsand benefits of salmon preservation and restoration efforts, three researchers concluded:

Traditional analyses do not easily capture or suitably address many of the different values associated with

species preservation, ways-of-life, job-security, community stability, etc., particularly with the reductionist ap-

proach characteristic of most natural and social sciences . . . It is clear that all disciplines and much scientific

analysis rest on a set of values which shape the focus and methodology of the analysis of many policy issues. The

information of a single analysis is thus constrained by its value base. Particularly in the case of species preserva-tion, the oftentimes narrowly-focused values of a reductionist approach are less-than-ideal information provid-ers to a policy problem that begs for insight into multiple values.

The Risks of AlachlorResearchers from the Institute for Risk Research at the University of Waterloo in Canada examined

the Canadian debate over the risks of the chemical herbicide alachlor. In a 1991 study, they conclude:

. ! . the debate over the risk of alachlor is not primarily a debate between those who accept the verdict of scientific

risk estimation and those who do not. It is not a conflict between those who understand the “objective” risks of

alachlor and those who are guided by an irrational “subjective” perception of its risks. Neither is it primarily a

debate within science itself. Rather, it is primarily a political debat-a debate among different value frameworks,

different ways of thinking about moral values, different conceptions of society, and different attitudes toward

technology and toward risk-taking itself,

SOURCES: U.S. Congress, Congressional Research Service, Hea/th Benefits of~i Po//ution Corttro/: A Discussion, 89-161 ENR(Washington, DC: Feb. 27, 1989, pp. 1-2); Jeffrey B. Hyman et al., Resources for the Future, “Dollars and Sense Under the Endan-gered Species Act: Incorporating Diverse Viewpoints in Recovery Planning for Pacific Northwest salmon,” Discussion PaperQE93-11, 1993, p. 11; Conrad G. Brunk et al., Va/ue Assumptions in Risk Assessment: A Case Study of the A/ach/or Controversy(Waterloo, Canada: Wilfred Laurier Press, 1991) pp. 6-7,


vert those numbers to a single unit of measuresuch as dollars (monetization).s The total mone-tary value of an energy source’s environmental ef-fects can then be compared easily with the totalcosts of other sources and with the costs of con-trolling those effects. If all effects of an energysource can be expressed in a monetary value, thentwo or more electricity generating technologiescan be easily compared, and the option with thelowest total cost is clearly preferable. The costs ofan energy source’s environmental damages alsocan be compared with the costs of controllingthose damages—helping to decide whether addi-tional controls are warranted. If multiple units ofmeasurement are used (e.g., dollars, lives, andacres of forest), then simple quantitative compari-son becomes difficult or impossible.

All the studies discussed in this report quantifyand monetize at least some of the effects they iden-tify.6 Several authors note that important classesof effects were either not quantified or not mone-tized in their studies. For example, Pace did notproduce monetized estimates for impacts fromgreenhouse gases such as methane (CH3) and ni-trous oxide (N20), air toxics, water use, land use,solid waste disposal, or the extraction and trans-portation of fossil and nuclear fuels. Similarly,Hohmeyer did not produce monetized estimatesfor impacts such as the psycho-social costs ofdeaths and illness, health care costs, the costs oflosing biological species, certain costs of climaticchanges, environmental costs of routine operationof nuclear plants, and aesthetic and land-use costsof renewable energy.

All of the studies reviewed in chapter 2 mone-tize the damages deemed reasonable by thestudy’s authors. However, not all studies includethe same damages. Damages may be excluded be-cause a study’s authors thought a damage was un-quantifiable, or because they thought it was small

enough to be ignored. Nearly every study explicit-ly notes broad classes of environmental costs thatwere not monetized.

Critiques of QuantificationEnvironmental cost studies focus on effects thatcan be expressed in quantitative terms. Theseterms are easier to discuss and handle analytically,and they can be presented in tables and graphs.The quantified results of environmental cost stud-ies are almost always featured prominently whenthe results of studies are reported in technical liter-ature and news accounts.

Accurate quantitative results can be among themost useful outcomes of an environmental coststudy. If well presented, quantitative results cancommunicate a study’s findings clearly, and theycan give readers an idea of the relative magnitudeof different sources of effects that have the sameunits of measure. Quantitative results also can beused easily by other analysts who are building onthe work of the original study.

These advantages have led many analysts topursue environmental cost studies—to quantifyimportant environmental effects not currentlyquantified and thus not included in energy deci-sionmaking. Their success, however, has beenincomplete. A variety of effects remains unquanti-fiable. Most environmental effects of energysources have consequences that cannot be quanti-fied.

Several analysts urge caution in the use ofquantification and contend that nonquantitativeresults of environmental cost studies are at least asimportant as quantitative results.7 Focusing onlyon quantitative results may construe the results ofstudies so narrowly that the studies’ main pointsare missed. Underlying much of the environmen-tal cost literature, however, is a strong drive to es-

5~1s ~pproa~h is, a]mos[ @ definition, pafi of ~ environmental COSt study.

60~er ~[udi~~ ~f~e ~nvlronmen[a] effects of energy sources rigorously avoid producing rnOne[iZecJ estimates of any kind. For example, see

John P. Holdren et al., “Environmental Aspects of Renewable Energy Sources,” Annual Review of Energy, vol. 5, 1980, pp. 241-291.

7See footnote 3.


timate and report quantitative results, often to theexclusion of nonquantitative ones.

Some studies (e.g., Shuman and Cavanagh)make an attempt to estimate even highly specula-tive effects, choosing to reflect the uncertainty inthe ranges of the final results, rather than not in-clude any estimates at all. Many other studies,however, only note that certain effects were notconsidered.

Critiques of MonetizationMonetization attaches estimates of value (mostoften expressed in dollars) to environmental ef-fects. In general, these effects first have to bequantified in some way (e.g., days of lowered visi-bility or numbers of acres of forest affected).Then, a monetary value is attached to the quanti-fied effect by using a valuation technique such ascontingent valuation, hedonic valuation, or con-trol costing (for details, see chapter 3).

Supporters argue that monetization is both auseful and inevitable part of energy decisionmak-ing. Considering no information about an envi-ronmental effect is equivalent to setting a value ofzero.8 Considering only qualitative informationabout an effect is equivalent to some quantitativevalue, although that value is never specified.9

However, the difficulties of monetizing envi-ronmental effects are so great that some analystsargue against it. The argue that the important char-acteristics of environmental effects include notonly the expected harm,10 but also a range of othermeasures: ll

| Probability and consequences: Although theexpected harm of two environmental effectsmay be equivalent, the characteristics of those

harms’ probability and consequences may dif-fer substantially. For example, nuclear reactoraccidents represent a large portion of the envi-ronmental costs of nuclear power in some stud-ies. Such accidents are relatively unlikely, butcould have extremely large consequences ifthey were to occur. Other risks (e.g., miningdeaths and injuries) are relatively certain andhave comparably small consequences. Com-paring or combining these two risks can beproblematic.

● Distribution of damages across space, time,and classes of victims: Where, when, and towhom impacts occur can affect how risks areperceived. For example, effects such as indus-trial accidents are immediate and affect onlyworkers in a particular industry; global warm-ing may remain a problem for centuries andmay affect people who received little or nobenefit from the electricity generation that ledto the warming.

• Degree of personal control: The likelihood ofsome effects can be reduced by actions taken byaffected individuals. For example, drivers cantake extra care at railroad crossings to reducetheir own likelihood of being killed or injuredin rail accidents. Other effects, such as airpollution, are more difficult to avoid.

● Degree of irreversibility: Some environmentaleffects are reversible, others are not. For exam-ple, reduction of agricultural crop yields can becompensated for by production elsewhere; aunique ecosystem that is severely harmed bypower plant emissions may be irreplaceable.

Because there is no generally accepted methodfor combining all of these characteristics into a

9~iel -s ~d Jonath~ hsser, Monetization and Quantijlcation of Environmental Impacts, State of Washington Interagency Task

Force on Environmental Costs, Issue Paper ITF-3 (Olympia, WA: Washington State Energy Office, June 1992), pp. 84-85.

IOEXpected ~rm is usually defined as the probability of an event multiplied by its consequences. For example, if an accident has a 5 IXXcent

probability of Occurnng each year and would result in 200 deaths, then the expected harm would be 10 deaths/year.

I IHol&n, op. cit., foomote 3, p. 243; John P. Holdren, “Energy Hazards: What To Measure, What To Compare,” Technology Review, April

1982, p. 32-39,74-75.


single number,12 some critics argue that monetiz-

ing and aggregating environmental effects are in-appropriate tasks for analysts. Deciding how toweigh the different components of environmentaleffects is necessarily a matter of personal valuesas well as technical judgment. As a result, such de-cisions use as much political and social judgmentas they do economic and ecological data.

Most critics of aggregation are not arguing thatsuch valuations should never be made by anyone,only that such decisions should not be made byanalysts.

13 Clearly, tradeoffs between environ-mental harms are necessary to make, but critics ar-gue that such decisions should be made in publicforums, not in analysts’ offices.

ImpactsMerely because a factor cannot be quantified ormonetized does not mean it is unimportant. ] 4 Formany conventional sources of energy, some of theenvironmental effects that are potentially the mostdamaging are the ones most resistant to convinc-ing quantification and monetization. For exam-ple, nearly all the environmental cost studiesreviewed in chapter 2 either explicitly exclude es-timates of the costs of global warming or they pro-duce estimates they regard as highly speculative.When studies do make estimates of costs associ-ated with global warming, however, it often repre-sents the largest single category of costs.

Unfortunately, nonquantitative results of envi-ronmental cost studies are often ignored in prefer-ence to results that can be expressed in monetaryterms. Quantified results are easy to cite and sum-marize, whereas nonquantitative results are diffi-cult to convey without long quotations or textualsummaries. As a result, monetized results may re-ceive more attention in news coverage and sum-maries aimed at policy makers.

In such cases, the inability to quantify and mo-netize all environmental effects may lead users ofenvironmental cost studies to underestimate thetotal effects of some energy sources. If importanteffects of some energy source are inherently diffi-cult to quantify and the monetized results domi-nate the presentation of conclusions, then thestudy may provide an inaccurate picture, despitesolid analysis.

In addition, in studies that do not monetize alleffects, far more attention must be paid to how re-sults are presented. Such studies present resultsthat are much more multifaceted and disparate,and thus require analysts to explore approaches topresenting complex data simply and clearly.

Underlying AssumptionsDecisions about quantifying and monetizing envi-ronmental effects reflect assumptions about thepolicy goals that environmental cost studies aremeant to support and the process by which deci-sions about the environment should be made.Studies conducted within an economic frame-work often assume that economic instruments(e.g., pollution taxes) are the policy tool of choice.From this perspective, monetizing environmentalimpacts and combining them into a single value isentirely appropriate. Establishing such instru-ments requires that all environmental effects besummarized in a single number-the economicvalue of those effects. With such an estimate inhand, almost all that remains for decisionmakersis to use these values to establish appropriate eco-nomic incentives for energy producers. In studiesconducted in noneconomic frameworks, there isfar less agreement and less focus on specificpolicy instruments.

Furthermore, different analysts appear to havedifferent assumptions about the preferred process

IZstirling, op. cit., footnote 3, p. 1027-1029.

13HOldren, op. cit., footnote 11, p. 38.

14 Ho]dren Ca]ls his problem “confusing things that are countable with things that cOunt.” Ibid.


for making environmental decisions. Many sup-porters of monetizing environmental effects arguethat individual preferences (expressed as mone-tary values) accurately summarize the overall val-ue of any particular effect and that these estimatescan be added (either across individual people oracross individual effects) to reflect the overall en-vironmental effects of an energy source. For ex-ample, an analyst might derive the cost associatedwith decreased visibility from coal emissions bydetermining an average individual willingness-to-pay from a survey of several thousand consumersand multiplying this by the total number of per-sons whose visibility would be affected. By con-ducting a similar process for each environmentaleffect, the analyst would add up all the costs andderive an overall estimate of damages for coal-fired generation.

However, some critics of monetization arguethat choices about the environment are inherentlya public function, not an activity that can be doneoutside of a public forum. 15 They claim that valu-ing the environment involves more than individu-als acting as consumers and responding to surveysthat estimate their willingness to pay for environ-mental improvements. Choices about the environ-ment necessarily involve individuals acting ascitizens involved in public debate, airing differingviewpoints, allowing individuals to become morefully informed, and finally choosing a course ofaction through a democratic process. To these crit-ics, monetization usurps a public function.

| Damage Costs VS. Control CostsEnvironmental cost studies differ in the valuationmethods used. Valuation methods are often di-vided into two categories-damage cost methodsand control cost methods (see table 4-2). Damagecost methods trace the effects of energy generationfrom emissions to eventual environmental dam-ages. The monetary value of those damages arethen estimated using market, hedonic, and contin-

Methods

Damage cost Market valuationHedonic valuationContingent valuation

Control cost Control cost valuationMitigation cost valuation

gent valuation. In contrast, control cost methodscircumvent this lengthy process by assuming thatcurrent environmental regulations implicitly val-ue the environmental damages that regulationsprevent. By examining the costs that legislativeand regulatory bodies impose on utilities to pre-vent some environmental damages, analysts canestimate the value of the remaining damages.

Control cost methods have been pursued large-ly on pragmatic grounds. In most cases, controlcosts are substantially easier to estimate than dam-age costs. Most analysts who use control costmethods agree that damage costs would be prefer-able, but they contend that estimating damagecosts is often hopelessly complex. Control costsare a “second-best” solution, they argue—a wayof obtaining rough estimates without the immenseanalytical effort required to estimate damagecosts.

Several studies use control cost methods to val-ue environmental effects. The studies by Pace,Tellus, Chernick and Caverhill, Hohmeyer, andShuman and Cavanagh all make at least some useof control cost methods, although the extent of usevaries widely (see chapter 2 for details). Of thestudies reviewed in detail by OTA, only the BPA,DOE/EC, and New York State studies make use of

15MWk SagOff, The Economy of the Earth: philosophy, Law, ad the Environment (Cambridge, England: Cambridge unb/f3rSitY PIWS,

1988).


damage cost approaches exclusively.lb Controlcosts also are used by many state regulatory com-missions that have incorporated environmentalcosts into utility requirements.

CritiquesStudies that have used control cost approacheshave drawn heavy criticism.

17 For example, crit-

ics argue that public decisions do not represent aconsistent and rigorous weighing of costs andbenefits. Several studies have indicated that dif-ferent regulations result in widely varying costsper life saved.18 Such evidence is used to bolsterthe claim that current regulations are not economi-cally efficient. Regulators either lack the ap-propriate information or, as in the Clean Air Act,are barred from considering the costs of control.Thus, critics argue, the implicit values assigned byenvironmental regulations are likely to be incor-rect.

Supporters of control cost methods argue that,although control costing is imperfect, it representsthe only currently feasible way to evaluate mostcosts. 19 Damage cost methods require an under-standing of the emission of pollutants, the trans-port of those pollutants, the exposure of humansand ecosystems, and the dose/response relation-ship of those exposed. This multiplies the numberof assumptions that a study must make and leavesroom for substantial bias and error.

In addition, the same problems that afflict esti-mates based on control costs afflict estimates

based on damage costs. For example, studies ofindividual judgments about risks are notorious forfinding seemingly “irrational” choices.20 Thesechoices presumably would be reflected in pur-chasing decisions and survey responses and thuswould afflict damage cost methods such as hedon-ic and contingent valuation. This has been borneout in contingent valuation surveys, where actualresponses do not match the theoretical predictionsof optimal consumer behavior (see chapter 3).

In fact, it is arguable that methods based on “re-vealed preferences,” whether they be the revealedpreferences of regulators (e.g., control cost valua-tion) or consumers (e.g., hedonic valuation), aremore likely to reveal accurate answers than con-tingent valuation estimates. Revealed preferencemethods, at least, have the benefit of operating un-der some budget constraints and requiring real ac-tions on the part of participants. In contrast,contingent valuation operates mainly within a hy-pothetical realm of what respondents say that theywould do under the given circumstances, and pastsurveys have often lacked a budget constraint.

In addition to these methodological problems,however, some critics believe that control costmethods have an even greater flaw. They arguethat control cost methods are not just inaccurate,but are nonsensical because they assume preciselywhat they should be trying to evaluate—whethercurrent environmental regulations are economi-cally efficient. Because the goal of evaluating en-vironmental costs is to balance the costs and

16Mmy s~dies m~e only limited use of con~o] cost valuation. For example, the pace study uses COI’ItTO] cost vah.IatlOn SOk]y tO eStiIYMk

damages for C02 emissions. Studies such as Pace nonetheless are labeled “control cost studies” by control cost critics. During reviews of draftversions of this report, several reviewers labeled the eight studies that OTA reviewed as “damage cost studies” or “control cost studies. ” How-ever, there was little agreement in the assignment of those labels.

ITFor example, see Paul L. Joskow, “Weighing Environmental Externalities: Let’s Do It Right!” The E/ec(ricify Journa/, May 1992, pp.53-67; Staff of the Federal Energy Regulatory Commission, op. cit., footnote 2.

]8For example, see John F. Mona]], ‘*A Review of the Record,” Regulation, November/December 1986 PP. *5-34.

Igstephen Bemow and Dona]d MmOn, Va/uation of En\>ironmental Externalities for Energy Pianning and operations 1990, May 1990

Upd-ue (Boston, MA: Tellus Institute, May 18, 1990); Paul Chemick and Emily Caverhill. “Methods of Valuing Environmental Externalities,”The Electrici~Journal, March 1991, pp. 46-53.

Zoln studies of ei~er individual or regulatq decisionrnaking, the definition of “rational” or “consistent” decisionmaking is often based on

expected harm (e.g., probability times consequences).


benefits of environmental controls appropriately,they argue, then using control costs as a measureof environmental benefits entails circular reason-ing.21,22 To allow balancing of costs and benefits,

the estimates of these two quantities should be ar-rived at independently.

ImpactsThere is disagreement over the impact of usingcontrol cost methods rather than damage costmethods. Supporters of control costing often ar-gue that the methods probably underestimate thevalue of environmental effects of energy. Criticsof control costing often argue that the methodsvastly overestimate their value.

Control cost methods could underestimate en-vironmental costs for several reasons. First, exist-ing regulations may be an environmental“bargain” in the sense that they cost far less thanthe nation’s citizens would be willing to pay. Justbecause citizens support one level of spending onenvironmental control or restoration does notmean they would be unwilling to support evenhigher costs for the same programs. In this way,control cost supporters argue, control costs repre-sent only a lower bound on the value of environ-mental effects .23 In most cases, then, control costsrepresent an underestimate. Second, some arguethat current environmental regulations systemati-cally undercontrol environmental effects due topolitical reasons.

24 If this is true, then control cost

methods would systematically underestimate thevalue of environmental effects.

Conversely, some critics claim that control costmethods may overestimate environmental costs.

First, according to these critics, current regula-tions already overcontrol some pollutants. Usingcontrol costs for these regulations overestimatesthe value of the remaining emissions. Second, us-ing the highest cost of control, as some studiesdo,25 purposely selects for high values. These val-ues may be too high due to ignorance or miscal-culation, not because of careful evaluation aboutthe costs citizens are willing to pay to avoid envi-ronmental damages. Using the highest cost ofcontrol, critics argue, is likely to inflate environ-mental cost estimates artificially.

Underlying AssumptionsPart of the dispute over the use of control cost ap-proaches stems from underlying disagreementsover policy goals and how environmental coststudies should be used to support those policygoals.

Critics of control costing often assume a policygoal of economically efficient regulation.2b In thisframework, consideration of environmental costsrepresents a way of reforming environmentalregulation—in particular, of reforming currentcommand-and-control regulations with moremarket-based approaches, such as emissions taxesand tradable permits. This type of reform requiresa balancing of economic costs and benefits. With-in such a framework, the use of control cost meth-ods appears to be nonsensical because it equatescosts and benefits-using the costs of pollutioncontrols to estimate the benefits associated withthose controls.

Outside an economic framework, however,control costing appears far more acceptable. Sup-

Chapter4 Assumptions in Environmental Cost Studies

porters of control costs genera lly are interested inpolicy goals other than economic efficiency.Policy goals such as protection of health and safe-ty, sustainability, and equity do not focus on bal-ancing costs and benefits. In addition, supportersof control costs generally are more interested inthe overall ability to compare the effects of energysources than in implementing specific market in-centives.27 From these perspectives, control costs

appear to be a more valid method for arriving at es-timates of environmental costs. The fact that theyderive from existing regulations is important onlyin evaluating their accuracy, not their overall legit-imacy.

Of course, the fact that some uses exist for con-trol cost methods does not excuse their use for pur-poses to which they are not suited. If the goal ofa particular environmental cost analysis is to bal-ance costs and benefits, then control cost methodswould embody circular reasoning. However, it isequally mistaken to say that control cost methodshave no place whatsoever in environmental costanalyses that have goals other than economic effi-ciency.

Another portion of the dispute over the use ofcontrol costing stems from underlying disagree-ments over who should be empowered to makevaluation decisions.

28 Proponents of control costmethods point out that the technique is merely ex-tending the coverage of previous decisions madeby elected and appointed government officials.Proponents of damage cost methods often pointout that their estimates come from studies of con-sumers (i.e., contingent and hedonic valuation).These methods allow individual citizens to ex-press their will more directly.

This issue demonstrates the tight links betweenseemingly technical issues of environmental coststudies and deeply held values about society anddecisionmaking. Valuation brings out issues of

55

is-how environmental problems are viewed andsues about what groups are invested with the pow-er to make decisions that affect the health ofindividuals and ecosystems.

I Average Effects vs. Marginal EffectsOne approach to determining the environmentaleffects of individual generating plants is to con-sider their average effect. For example, to deter-mine the S02 emissions of an oil-fired plant, ananalyst might find out the emissions of a randomsample of generating plants and find the averagenumber of pounds of S02 emitted per kilowatt-hour of electricity that reaches consumers. Simi-larly, an analyst attempting to determine theenvironmental impact of a pound of S02 mightfind the overall damages attributed to S02 emis-sions and then divide by the total number ofpounds of the pollutant known to be emitted.

Another approach is to consider the marginaleffect of an individual generating plant. For deci-sionmakers who are deciding whether to build anoil-fired plant, the relevant figure is how muchS02 will be emitted by the new plant, not by theaverage plant that is now operating. The averagefigure will include old plants that are just a fewyears from retirement as well as new plants thatwere just constructed. Similarly, the environmen-tal impacts associated with an additional pound ofS02 maybe substantially different from the aver-age damage.

These examples illustrate the difference be-tween average and marginal effects. Economistsare quick to point out that, for most decisions, itis the marginal effects that matter. For policy deci-sions such as building new power plants, taxingpollutants, and setting emissions limits, the mar-ginal effects indicate what marginal benefits couldbe achieved by the measures.

ZgShuman and Cavanagh note: ‘The controversy over the ‘true’ value of human life may mask an intractable moral question about whoshould make the decision.” Michael Shuman and Ralph Cavanagh, A Model Conservation and Electric Power Plan for the Pacific Northn’es~,Appendix 2 (Seattle, WA: Northwest Conservation Act Coalition, November 1982).

56 | Studies of the Environmental Costs of Electricity

Marginal analysis does not always involve de-termining the emissions of new plants. Estimatingthe marginal cost might also be used for other pur-poses, such as determining which existing powerplants to dispatch,29 determining appropriatecompensation for those who live near existingplants, or determining what plants to remove fromservice.

A special case of this problem is location speci-ficity. Some studies attempt to produce nationalaverage estimates of the environmental costs as-sociated with different types of generating plants.However, local conditions can vary greatly. Fac-tors such as weather, surrounding ecosystems, andpopulation density all are important inputs to en-

30 Some studiesvironmental cost calculations.have dealt with this problem by limiting the studyto a relatively homogeneous region; for example,Shuman and Cavanagh focus on the PacificNorthwest. Other studies produce different esti-mates for different sites. For example, the BPA ge-neric coal study provides six different estimates ofenvironmental costs based on geographic locationand the population of nearby cities.31

CritiquesSome environmental cost studies have been criti-cized for looking only at average effects. Criticsargue this misrepresents the options available todecisionmakers. Decisionmakers (whether eco-nomic, regulatory, or legislative) can only affectenergy generation at the margin (e.g., by choosingwhat plants to construct, modify, or shut down).

The issue of marginal effects is particularly im-portant to economists, but ecologists also arguefor considering marginal effects. Ecological re-sponses are often nonlinear.32 Although little eco-logical damage may have resulted from currentlevels of pollution, additional amounts can haveeffects that are dramatically worse. Thus, ecolo-gists argue, considering average effects of pollu-tion may substantially underestimate the effects ofsome pollutants.

Most studies to date have examined average ef-fects. In general, this has been because of the diffi-culty of examining marginal effects. There is greatuncertainty in the estimation of average effects;marginal effects represent an even greater analyti-cal challenge. However, a few studies have ex-amined site-specific numbers. The DOE/ECstudy is focusing on specific sites in an effort toavoid this problem. Other studies have empha-sized the environmental effects of new plants in aneffort to avoid some of the pitfalls of consideringaverage effects.

ImpactsThe impact of considering average rather thanmarginal effects depends on the effect being ex-amined. Considering average ecological effectsprobably lowers environmental cost estimates.Current levels of pollution maybe assimilated bythe environment in ways that increased levelscould not be. Similarly, if thresholds exist for eco-logical and human health effects from certain pol-lutants, then increasing pollutant levels might

Zgstephen Bemow et al., “Full-Cost Dispatch: Incorporating Environmental Externalities in Electric System Operation,” The Electricity

Journal, March 1991, pp. 20-33.

3oOttinger et al., Op. cit., foo~ote 2, pp. 68-69; Alan Krupnick, “The Social Costs of Fuel Cycles: Lessons Learned,” Discussion paper

QE93-04 (Washington, DC: Resources for the Future, 1993), p. 15.

31EC() Nofiwest et a]., Generic c~ai Srudy: Quantification and Valuation ofEnvironmental Impacts, repon commissioned by BonnevillePower Administration, Jan. 31, 1987.

321n his context, nonlineari~ refers to how an ecological system responds to different levels of Pollutilnts. For many ecological systems.

adding a certain amount of a pollutant can have a small or a large effect, depending on the current level of pollutants already in the system.


cross those thresholds, resulting in ecological andhuman health effects that were not present pre-viously.33

The impact of considering emissions from av-erage electric generating plants is less certain. Ingeneral, newer plants are cleaner than plants basedon older technology, but plant location matters aswell. A specific plant may have higher or loweremissions depending on how its locationcompares with that of the generating plants usedin the calculations of average environmentalcosts.

Underlying AssumptionsArguments about the relative merits of consider-ing average and marginal costs rest on assump-tions about the role of environmental cost studiesin policy. Analysts concerned with economic effi-ciency are likely to focus on the importance ofmarginal analysis when considering power plantsand other technological infrastructure. In thisview, considering average costs will raise envi-ronmental cost estimates artificially because, forexample, new plants are cleaner than old ones.

Analysts concerned with sustainability aremore likely to focus on the importance of consid-ering marginal effects on ecosystems. In this view,considering average costs will lower environmen-tal cost estimates artificially because, for exam-ple, it will not account for the probability ofcrossing some unknown threshold-beyondwhich an ecological system cannot assimilateadditional pollutants.

| InternalizationWhen examining environmental costs, econo-mists are particularly concerned with internaliza-tion. Every environmental cost analysis attemptsto quantify environmental damages in monetaryterms, but economists generally go a step further

to ask whether existing environmental regulationsalready internalize, or account for, these damages(see box 2-2 for the economic theory of external-ities and internalization).

Many existing environmental cost studieslargely ignore the question of internalization. Ofthe six completed studies reviewed by OTA, nonesystematically considers whether current regula-tions have internalized some or all environmentalcosts. The ongoing DOE/EC study will carefullydelineate between damages and externalities foreach damage pathway.

34The ongoing New York

State study has determined that a few classes ofenvironmental damages were already internalizedand excluded them from further consideration.

CritiquesWhen reviewing environmental cost studies, util-ity and industry representatives often respond byciting the large number of environmental regula-tions with which they already comply. A largenumber of existing regulations control humanhealth and environmental impacts of mining,construction, transportation, and electricity gen-eration activities.

Some critics of current environmental coststudies argue that, if a pollutant is currently regu-lated, and utilities are in compliance with that reg-ulation, then no economic externality can exist.This argument generally is made from one of twoperspectives. One perspective is that current regu-lations accurately weigh environmental costs andbenefits. This is the same assumption that someeconomists criticize when it is used to justify con-trol costing. However, to the extent that currentregulations do balance costs and benefits, it can beargued that the regulations internalize the environ-mental costs associated with the pollutants theyregulate. An alternative perspective is that somecurrent regulations require that pollutants be re-duced to levels where no significant health effects

331t iS ~SSib]e, though probably Unlike]y, that considering average costs rather than marginal COStS would increaSe estimates of environ-

mental costs. For example, there may be situations where “the damage is done” and the marginal damages might be less than the average dam-

ages.

3’$pathway5 are the links between emissions and impacts (See figure 2-1).


occur. For example, the criteria for setting stan-dards under the Clean Air Act is to “protect healthwith a margin of safety.” By this reasoning, elec-tricity utilities in compliance with standardsshould not produce any significant health effects,let alone effects that can be considered to be exter-nalities.

Several responses are made to the argumentthat current regulations completely internalize en-vironmental costs. First, existing regulations nei-ther eliminate environmental effects entirely, nordo they effectively balance them against controlcosts. Health effects remain even after regulationand those effects are not always accurately bal-anced against the costs of control.35 Some arguemore broadly that relatively few environmentalimpacts are reflected in the market costs of energy,so largely ignoring internalization is appropri-ate.3G

Second, some supporters of environmental coststudies reject a strict definition of externalities.They argue that it is important to understand theenvironmental effects of energy regardless ofwhether they are “internalized.” Third, someeconomists argue that, in some cases, current reg-ulations are largely irrelevant to determining ex-ternalities. Instead, studies can use the marginalenvironmental damages as a reasonable estimateof externalities.37 Consistent with this conclu-sion, some studies, such as the Pace study, argueit is important to consider the costs of residualemissions—those emissions that remain after reg-ulations have been imposed.

ImpactsAssuming that current regulations eliminate allexternalities certainly would produce lower esti-

mates of environmental cost. When studies as-sume that regulated pollutants still can produceexternalities, they will include a larger number ofeffects than if they used a more restrictive defini-tion. For example, risks of occupational deathsand injuries are assumed, by at least some ana-lysts, to be compensated for by increased wages inhazardous industries. If environmental costs aredefined as only those effects that are not alreadyincluded in market prices, then occupationaldeaths can logically be excluded from total costestimates. If environmental costs are defined morebroadly as all environmental effects, however,then occupational risks should be included, andcost estimates will increase.

Underlying AssumptionsThe issue of whether internalization is importantdepends upon assumptions of what policies envi-ronmental cost studies are intended to support. Es-timating the monetary value of environmentaldamages associated with energy production,something all environmental cost studies do, ad-dresses one question: What is the monetary valueof the environmental effects of energy? Evaluat-ing whether those damages are already interna-lized helps to address another question: Whatshould we do about it? Both questions are impor-tant, but a study does not necessarily need to an-swer the second question in order to be useful.

To achieve a policy goal of economic efficien-cy, assessing the current degree of internalizationis vital. Estimates of uninternalized environmen-tal costs are necessary to achieving economic effi-ciency through economic instruments such aspollution taxes. Without analyzing the degree of

371n Cmes where existing mgu]ations are based on “command and control” and not economic incentives, the correct ItIOIWiry amOUnt 10

add to private costs is equal to marginal damages. A. Myrick Freeman III, et al., “Accounting for Environmental Costs in Electric Utility Re-

source Supply Planning,” Discussion Paper QE92- 14 (Washington, DC: Resources for the Future, 1992).


internalization achieved by current regulations, itwould not be clear where to set pollution taxes.38

If, however, the intent of an environmental coststudy is to support different policy goals, then thedegree of internalization may be less important.For example, to inform policies concerned withequity, it would be important to know who is af-fected by pollutants, even if the effects of thosepollutants are fully internalized in an economicsense. Merely because utilities are taxed for thepollutants they generate, for example, says noth-ing about whether those affected by the pollutantsare compensated.

Thus, for purposes other than economic effi-ciency, it can be useful for studies to estimate thecosts of environmental effects, regardless ofwhether those effects are already internalized.Furthermore, estimating such costs is necessarybefore economic externalities can be estimated. Inthis sense, investigating and detailing all environ-mental effects is useful regardless of the policygoal.

| Managing UncertaintyEnvironmental effects differ in the certainty withwhich they can be established. Some effects arefairly well understood. For example, mining acci-dents are a known risk of coal-fired electricitygeneration. Accurate statistics have been kept fordecades and the frequency and magnitude of therisk are well understood. Other risks are less cer-tain. For example, the probability and conse-

quences of large-scale nuclear reactor accidentsare still the subject of substantial debate.

How to estimate and represent uncertainty is apersistent problem for many types of quantitativestudies, but it can be a particular problem for envi-ronmental cost studies.39 The data and relation-ships used in environmental cost studies are oftenuncertain, and this uncertainty propagatesthroughout the study and affects the final results.Furthermore, uncertainty tends to increase as thestudy moves from inputs to final results (e.g.,from emissions to valuation).

Systematic treatment of quantitative uncertain-ty is not easy. The uncertainty of each piece of in-put data must be assessed, and then theseuncertainties must be combined in a credible way.Analytical methods that combine uncertaintiesoften make fairly large assumptions (e.g., that theuncertainty associated with one piece of input datais independent of the uncertainty associated withothers). Even with these assumptions, however,the combination of many uncertain inputs is ana-lytically challenging.,4041

CritiquesAnalysts differ on how to handle uncertainty.Some analysts argue for a restrictive stance onwhich effects to include. They exclude uncertaineffects because they are too speculative and arelikely to artificially inflate estimates of environ-mental costs. Other analysts are fairly liberalabout which effects to include. They include un-

38An added ~omp]ication iS hat internalization represents a moving target. Environmental laws and regulations are frequently altered, SO an

analysis can become outdated quickly.

39 However , Uncefiainty is not Unique t. environmental co5t studies. Ofier areas of utility planning and regulation encounter this problem as

well. Paul Chemick, From Here to Eficiency: Securing Demand-Management Resources, Volume 5, Quantifying the Benefits ofDemand Man-

agement (Boston, MA: Resource Insight, Inc., January 1993).

@For additional discussion of his problem, see M. Gr~ger Morgan and Max Henrion, Uncertainty: A Guide to Dealing With Uncerlainv in

Quantitati\’e Risk and Policy Analysis (Cambridge, England: Cambridge University Press, 1990).

41~e Do~Ec study is making ~ extensive effo~ t. rigorously deal with Unceflain[y. me approach used in tie study is intended both to

allow quantitative uncertainty estimates and to provide qualitative information to potential decisionmakers. See Oak Ridge National Laborato-ry and Resources for the Future, U. S.-EC Fuel Cjcle Stud~: Back~round Document 10 the Approach andlssues, Report No. 1 on the External

Costs and Benefits of Fuel Cycles: A Study by the U.S. Department of Energy and the Commission of the European Communities, ORNIJM-2500, November 1992, pp. 2-23-2-26.

60 I Studles of the Environmental Costs of Electricity

certain effects because of concerns about grosslyunderestimating the true effects of energy produc-tion. Finally, some studies give a range of esti-mates, reflecting different thresholds ofuncertainty.

For example, studies differ in whether theyconsider potential damages from global warmingcaused by greenhouse gas emissions. Some stud-ies, such as the New York State study, have con-cluded that the uncertainties of estimatingdamages associated with C02 are so great thatthey will not attempt an estimate and will insteadassign a default value of zero.42 Other studies,such as Shuman and Cavanagh, assign a highlyuncertain value to the damages, varying betweenzero and more than half of the total damages asso-ciated with coal generation.

Many current environmental cost studies donot systematically consider uncertainty through-out their calculations. In general, the studies makepoint estimates of potentially uncertain data anduncertainty is only discussed in the report’s text,not indicated in the reports’ quantitative results .43Point estimates are rarely rounded to reflect theirrough level of accuracy.

ImpactsA study’s approach to uncertainty can have signif-icant effects on results. Including uncertain envi-ronmental effects can only increase the estimatesof environmental costs. Ignoring the issue of un-certainty may make the studies useless from apolicy standpoint. If the cost differences betweenenergy sources are significantly smaller than therange of uncertainty of the estimates, then the esti-mates will be of little value. Whether this is trueof current estimates is difficult to say, given the

way in which many current studies handle uncer-tainty. Readers are left with a clear idea of the stud-ies’ “best guesses,” but little quantitative idea ofthe possible range of results.

Underlying AssumptionsApproaches to resolving uncertainty vary greatlyand rest at least partially on value judgments of theanalysts involved. For some, a lack of evidence in-dicates relative safety—if risks were present, thenresearch would have indicated their presence. Toothers, a lack of evidence indicates how little isknown about potential risks—if information islacking, then research may be overlooking impor-tant risks.44

For example, a recent survey of 22 experts onthe economic impact of global warming demon-strates the different reactions to uncertain evi-dence.45 Quantitative studies are unable to predictthe consequences of global warming with a highdegree of certainty, so the survey sought to collectthe subjective estimates of various experts. Theircollective judgment might produce estimates ofimpacts to be used in quantitative models. How-ever, the survey indicated afar more interesting re-sult. The subjective estimates of different groupsvaried widely: mainstream economists expressedlittle concern about potential impacts and wereconfident that human societies would adapt handi-ly to the changes. In contrast, natural scientists ex-pressed great concern about potentially large andirreversible destruction of life-sustaining ecosys-tems.

| DiscountingDiscount rates are used to compare economiccosts and benefits that occur at different times. A

42 RCG/Hag]er, Bailly, InC., “New York State Environmental Externalities Cost Study Report 1: Externalities Screening and Recommenda-

tions,” ESEERCOPro@ctEP91 -50, December 1993, p. iii. The study’s computer model will allow users to insert their own value for C02 dam-

ages.

qs~en tie DOE-EC studies are released, they may be an important exception.

44Haold p. Gr~n, “’l”he Risk-Benefit Calculus In Safety Determinations,” George Washington University Law Review, vol. 43, No. 3,

March 1975, pp. 791-808.

45Willim D. Nordhaus, “ExFfi Opinion on climatic Chmge,” American Scien~isr, January-February ]994, pp. 45-51.

Chapter4 Assumptions in Environmental Cost Studies

positive discount rate indicates that a cost of $10that will be incurred in five years is worth less than$10 today. How much more depends on the dis-count rate. For example, if the discount rate is 3percent, a $10 expenditure five years in the futureis only equivalent to $8.59 today.

The practice of discounting can reflect manyconcerns. First, discounting can reflect a funda-mental human tendency. People would rather havea good now than later. Second, it can account forthe productive nature of some resources. Betweennow and some future time, some resources can beproductive, generating revenue for their owners.Resources such as farmland and livestock meetthis criterion. Third, discounting can reflect riskand uncertainty about the future. The practice ofcharging interest on loans is a recognition of thebusiness risks associated with investments.Fourth, discounting can be used to adjust for tech-nological change. Environmental damages in thefuture may be less harmful than today becausenew technologies will be developed to mitigatethem.

Environmental cost studies use discount ratesto adjust some cost estimates. For example, Shu-man and Cavanagh’s study uses a 1 percent dis-count rate for property damage and a discount rateof zero for human lives. In general, environmentalcost studies have applied discounting to only afew, long-term effects of electricity generation.These include the global warming effects of CO2

emissions and the long-term risks of nuclearwaste. Because these impacts are often a signifi-cant component of total environmental cost, dis-counting can be an important issue. However,discounting does not affect the majority of impactcategories, either because the impact is relativelyprompt (e.g., oil spills), because studies do not ap-

‘fQtinger et al., op. cit., footnote 2<

ply discounting to them (e.g., human deaths

161

andinjuries), or because a valuation technique is usedthat avoids discounting entirely (e.g., control costvaluation).

CritiquesThere are several views on how discount ratesshould be used to value environmental resources.Some economists and utility experts argue for us-ing rates similar to those used by utilities for valu-ing capital investments (e.g., 6 to 8 percent).46

This provides a consistent basis for utility re-source selection decisions, but it also has the ef-fect of reducing the value of damages that occurfar into the future (e.g., global warming or nuclearwaste storage) to nearly zero.

Many environmentalists argue for using rela-tively low discount rates. Low discount rates havethe advantage of treating future generations equal-ly to our own, but they also may cause relativelycertain, near-term effects to be ignored in favor ofmore uncertain, long-term effects. Future genera-tions may have new technologies and knowledgethat will cheaply and easily deal with long-termenvironmental threats such as global warming ornuclear waste storage.

ImpactsHigh discount rates will produce lower damageestimates because they reduce the costs associatedwith environmental impacts that occur in the fu-ture. For example, a high discount rate will de-crease the importance of the impacts of globalwarming. The BPA generic coal study explicitlyignores the impacts of global warming for this rea-son.47 Conversely, low discount rates will resultin higher damage estimates.

Zti’~ey ~a]cu]ate hat, even if global Wining damages are $5 trillion, because the damages will occur 100 years from now! tie amount

attributable to a single coal plant (after discounting at 3 percent) is less than $8,300 per year (this calculation assumes that coal is only responsi-ble for 33 percent of all C02 emissions, and that a single plant consumes only 0.001 percent of all coal consumed in the world). The studyignores this amount because it would add less than 1 percent to the total environmental costs that the study attributes to a generic coal plant. ECONorthwest et al., op. cit., footnote31, pp. 4-7.

—-—


Underlying AssumptionsSome disputes over discount rates can be traced toassumptions about the relative importance of nat-ural resources (e.g., forests, lakes, and animals)and technological resources (e.g., roads, dams,and machinery). Applying discount rates to envi-ronmental impacts implies an equivalence be-tween natural and technological resources. Theability to trade off natural and technological capi-tal has been strongly disputed by some ecologists.For example, some argue that natural and techno-logical capital can be more clearly seen as comple-ments than as substitutes—implying that we needboth to make use of either.48,49 Although fundsused to construct technological systems can bebanked and spent at a later time, the same cannotbe said of human lives and the important charac-teristics of ecosystems. Similarly, once some eco-logical systems are consumed, they may bedifficult or impossible to regain.

Discounting also raises questions of how muchreliance can be placed on technological solutionsto current and future environmental problems.Advocates of high discount rates sometimes arguethat technological progress will find solutions tofuture environmental harms. Those who advocatelow rates do not wish to depend on future progressto mitigate harms that could be prevented today.

I ConclusionsThese issues do not exhaust the list of situations

where disputes can be based on underlying as-sumptions and values, but they provide a startingpoint. Each of these issues can affect the outcomeof a environmental cost study, and how each issueis resolved depends largely on an analyst under-lying assumptions. The “right” assumptions foran environmental cost study are not clear, and cur-rent debates over environmental cost studies aredoing little to resolve them. Instead, discussions

of the technical details of individual studies oftenhide disagreements over basic assumptions.

FRAMEWORKSThe discussion above indicates the wide variety ofissues that affect environmental cost studies andthe diversity of assumptions that affect how ana-lysts resolve those issues. The assumptions occurat many different levels of analysis. One way ofunderstanding these assumptions is to divide theminto three levels: first, the fundamental goals thestudy is intended to support; second, the generalstrategies used to frame the study; and third, thespecific methods the study uses to make its esti-mates.

Table 4-3 provides examples of these frame-works. The positions outlined are extreme, andrarely adopted in unalloyed form, but they help il-lustrate different frameworks, the connectionswithin individual frameworks, and the broadspectrum of possible assumptions that underlieenvironmental cost studies.

| GoalsAnalysis of environmental cost issues does nottake place in a vacuum. Nearly every analysis be-gins with a particular view of problems not fullyaddressed by current policies. For example, eco-nomic analysis of environmental questions oftenbegins by examining why current markets fail tocontrol environmental effects. Analysis of thesame issues by environmental groups often beginsby noting emerging global environmental threatsthat are linked to energy use.

These problems often are translated into an im-plicit or explicit policy goal. Economic efficiencyis nearly always the presumed goal of economicanalyses of environmental cost problems. Publicprotection is a traditional goal of much existingenvironmental regulation. Sustainability is quick-

48Here the tem ~omplemenf~ is “~~d in ~ economic sense. complements we defiied by economists a.s hcrn.s whose Cmslmpdm is c]osdy

related. Computer keyboards and monitors are complements—when purchases of one rises or falls, the purchases of the other moves similarly.

4gRo~~ Coswa ~d Herm~ Daly, “Natural Capital and Sustainable Development,” Conservation Biology, vol. 6, 1992, pp. 37-46.

Goals Strategies

Policy goalWhat is the source of Role of environmental cost What are environmentalenvironmental problems? studies in energy policy costs?

Economic

efficiency

Protection of

public health

and safety

Ecological

sustainability

Equity

Markets do not capture all theimportant information for energydecisionmaking by producersand consumers. Existingregulations are inefficient.

Energy technologies havecreated risks to the public thatare preventable.

Existing energy use is notecologically sustainablebecause individual consumersact according to their ownnarrow self-interest, instead ofconsidering the impacts of theiractions on the wholeecosystem.

Disparities in political andeconomic power exist betweendifferent members of society.Powerful individuals attempt topush adverse effects ontoothers while retaining thepositive effects for themselves.

Quantify the necessarycorrections to energy marketsso that all importantdecisionmaking information canbe contained in prices.Compare the total costs andbenefits of a specific policy.

Indicate where governmentaction is necessary to minimizethe health and safety impacts ofenergy production.

Indicate where governmentaction is necessary to makeenergy production sustainable.

Indicate situations whereinequities occur and quantifythe damages in order tofacilitate compensation.

Externalities—environmental effects thatare not reflected in currentenergy prices and that areeconomically quantifiable.

Unintended side effects ofenergy use.

Effects on global or localecosystems that are notapparent or are not ofinterest to individualconsumers.

Adverse effects of energyuse that are not borne bythose who benefit.

Methods

Valuationapproach What is value?

Consumers actingin markets.

Legislators andregulators actingin politicalsystems.

Scientists actingin scientificsettings.

Legislators,regulators,judges, and juriesacting in politicaland legalsystems.

An amount thatconsumers arewilling to pay for anenvironmental goodor service.

One measure of theimportance of anenvironmentaleffect.

An indicator thatcan be used tocommunicateecologicalimportance.

An amount thatprovides justcompensation andthat punishes unjustactions.



ly becoming the predominant goal underlyingmany analyses that take an environmental per-spective. Equity has recently emerged as a con-cern about environmental impacts

These policy goals are not mutually exclusive,and few analysts would explicitly advocate pursu-ing only one of them. However, single policygoals are often implicitly assumed without sub-stantial attention to other goals. Such an approachis understandable because combining severalpolicy goals is difficult and requires an overarch-ing organization that needs to be explained and de-fended. Such an activity goes beyond the scope ofmost environmental cost studies.

Most existing environmental cost studies fallprimarily within a framework of protecting publichealth and safety. The studies are aimed at identi-fying environmental effects of energy to indicatewhere government action is necessary. Theybroadly consider all environmental effects of en-ergy, without substantial concern about whethersuch effects have already been, in a strict econom-ic sense, internalized by existing regulations.

These studies and their use by state regulatorycommissions have been strongly criticized formisunderstanding economic concepts. For exam-ple, questions have been raised about the use ofcontrol costing, not accounting for currently inter-nalized effects, and using average instead of mar-ginal effects. Partially in response to thesecriticisms, the ongoing DOE/EC study falls pre-dominantly within a framework of economic effi-ciency. The study’s authors take pains to explainthe specifics of this policy goal, and they point outhow current studies fail to inform such a policygoal adequately.

Few, if any, studies have approached environ-mental issues from a framework of equity. How-ever, environmental equity has been the focus ofintense attention recently, and casual readers ofenvironmental cost studies often assume that thestudies are primarily concerned with equity. Inaddition, equity is of great concern to federalpolicymakers, particularly Congress.

I Strategies and MethodsPolicy goals often translate fairly directly into

other important assumptions in environmentalcost studies. Some of these assumptions concerna study’s strategy (i.e., what role is envisioned forthe study in energy policy). Other assumptionsconcern methodology (i.e., how the study assignsvalue to environmental effects).

Frameworks based on economic efficiency canappear to offer a complete basis for policy, provid-ing an extremely clear, although limited, role forpolicymakers. Economics provides a theoreticaldescription of environmental problems (marketfailures), a quantitative strategy for informingpolicy (estimating externalities), methods for car-rying out that strategy (e.g., contingent valuation),and a set of policy tools (e.g., pollution taxes).Critics of exclusively economic approaches ar-gue, however, that economics is far from a com-plete system. Other important goals such assustainability and equity are not directly ad-dressed by economics, and they can be difficult tointegrate with economic goals.

Most proponents of economic approaches ar-gue for a more moderate position—that economicinformation supports the creation of policies thatare economically efficient, and that also achieveother ends such as equity or sustainability. Such aview, however, presupposes that environmentalcost studies provide relatively technical and un-biased information to policymakers-castingpolicymakers as the arbiters and integrators of in-formation. However, as indicated above, environ-mental cost studies themselves often embody,rather than inform, decisions about assumptionsand values.

In addition, the tendency of some environmen-tal cost studies has been to push the boundaries oftechnical analysis outward, attempting to sub-sume progressively larger set of issues within aquantitative framework. Such quantitative treat-ment can be appealing to policy makers faced withdifficult decisions. Because economic efficiency


goals are more easily treated quantitatively, there studies used in federal and state policymaking?is a danger they may effectively override other What challenges await if they become more wide-goals and become the de facto basis for policy. ly used on the federal level? How can they be con-

Careful assessment of the policy role for envi- ducted to best meet the needs of policymakers?ronmental cost studies is needed, particularly giv- These questions are considered in the next chap-en current and future attempts to use these studies ter.on the federal level. How are environmental cost

Roles forEnvironmentalCost Studies in

Policymaking 5

This chapter discusses the current state and federal policiesthat require the evaluation or use of environmental costs,and it outlines how environmental cost studies can bemade more useful to federal policy makers. It explains

some of the links between environmental cost studies and policyand some of the difficulties of applying current studies to federalpolicymaking. Although current studies are not being used exten-sively on the federal level, several new studies soon will be re-leased, and there is likely to be increased debate over whether toconsider the findings of these future studies when developing fed-eral policy.l Increased use of environmental cost studies presentsfederal policy makers with both pitfalls and opportunities.

CURRENT LAWS AND REGULATIONSSeveral policies at the federal and state levels involve explicitconsideration of environmental costs. They demonstrate the vari-ety of approaches to environmental costing and the ways currentstudies are used.

| Federal LawsThe federal government incorporates environmental cost con-cepts into a wide variety of legislation and regulations.2 These in-clude the Energy Policy Act of 1992 (Public Law 102-486,

I

I

167


Concerns about the federal budget deficit and the existing tax structure have prompted close ex-

amination of alternative methods of raising revenue, including environmental taxes. Such taxes couldinclude energy-related policies such as carbon taxes and gasoline taxes, and nonenergy policies suchas charges for municipal solid waste collection, congestion taxes on urban highways, and taxes ontoxic chemical emissions.

Proposals for environmental taxes cite several advantages, First, they offer a source of federal reve-nue to address the budget deficit. Alternatively, they could be used in a revenue-neutral manner, toshift away from taxing “goods” (such as income) and toward taxing “bads” (such as pollution). In eithercase, the taxes would reduce emissions of the taxed pollutants (such as C02) or reduce consumptionof the taxed goods (such as gasoline).

For example, the Clinton Administration proposed a BTU tax in early 1993. The proposal would haveimposed a base rate of 25.7 cents per million BTUs on coal, natural gas, nuclear power, hydroelectrici-ty, home heating oil, liquefied petroleum gases and imported electricity. An additional tax of 34,2 centsper million BTUs would have been imposed on gasoline and other refined petroleum products, Themeasure was designed to raise $50 billion between 1994 and 1997, as well as reduce emissions of C02

and cut imports of oil.Even prior to these measures, however, the federal government collected some revenue from envi-

ronmental sources, in 1992, the federal government collected an estimated $7.6 billion in revenues fromnatural resources and environment-related sources (see table below), about half of one percent of thefederal budget, While these federal revenues are not directly related to environmental damage, they doreflect charges for natural resource depletion (in the case of the leasing and land use fees) and indirect

pollution (in the case of the environmental penalties and CFC taxes).

Sources of Federal Revenues from the Environment (1992)Amount

(billion $) Source2,8 Leasing and extraction of oil, natural gas, and minerals

2.0 Penalties and recoveries from environmental cleanup

1,6 Fees from timber harvesting, grazing, and other land use

0662 Taxes on chlorofluorocarbons

SOURCE Council on Environmental Quaility, Environmental Quality: 23rd Annual Report of the Council on Environ-

mental Quality (Washington, DC: U.S. Government Printing Office, 1993).

Environmental taxes can be an unstable revenue source, however. To the extent that environmentaltaxes discourage pollution, they also reduce the revenue that they generate. Unless the tax rate is pro-portionally increased, the tax receipts will decline. If this effect is relatively mild and temporary, it mayrepresent more of a start-up problem than a long-term liability of environmental taxes. If, however, it isfeasible to completely eliminate a taxed pollutant, then the revenue source will disappear entirely.

SOURCES: Robert Repetto et al,, Green Fees: How a Tax Shift Can work for the Environrnent and the Economy, (Washington, DC:

World Resources Institute, November 1992); and Margaret Kriz, “A Green Tax?” National Journal, Apr. 17, 1993, pp. 917-920,

the Clean Air Act Amendments of 1990 (Public The Energy Policy Act of 1992Law 101-549, the Pacific Northwest Electric This act requires the Secretary of Energy to devel-Power Planning and Conservation Act of 1980 op a least-cost energy strategy to promote energy(Public Law 96-501), and certain pending legisla- efficiency and limit the emission of carbon diox-tion.

Chapter5 Roles for Environmental Cost Studies in Policymaking 169

ide (C02) and other greenhouse gases. In develop-ing the strategy, the Secretary is directed to “takeinto consideration the economic, energy, social,environmental, and competitive costs and bene-fits . . . of his choices.”3 Assumptions are explicit-ly identified as an important component of theleast-cost energy strategy. The act states that” theSecretary shall include in the least-cost energystrategy an identification of all of the assumptionsused in developing the strategy and prioritiesthereunder, and the reasons for such assump-tions.”4

The Clean Air Act Amendments of 1990The 1990 Clean Air Act Amendments (CAAA)requires that the Environmental ProtectionAgency (EPA) conduct periodic, comprehensiveanalyses of the costs, benefits, and other effects ofthe act.5 In considering benefits, the analysis is toinclude all economic, public health, and environ-mental benefits of efforts to comply with provi-sions of the act.b The amendments specificallyreference quantitative studies of environmentalbenefits, noting that in cases where numerical val-ues are assigned to the act’s benefits, a default as-sumption of a zero value shall not be used, unlessit is supported by specific data. This is intended tocombat the practice of counting only the effectsthat can be quantified and assuming that all un-quantified effects are unimportant (and thus havea zero value). EPA is also directed to assess howthe benefits of the act are measured in order to en-sure that damage to human health and the environ-ment is accurately measured and taken intoaccount.

342 USC. tj 13382(@.

442 U.S.CO ~ 13382(e).

542 us-c. ~ 7612(a) and (b).

The Pacific Northwest Electric PowerPlanning Act of 1980This act requires that the Northwest Power Plan-ning Council develop a methodology for deter-mining quantifiable environmental costs andbenefits, and apply it to help determine the totalsystem cost of energy resources.7 The act resultedin the studies commissioned by the BonnevillePower Administration (BPA), as well as the Shu-man and Cavanagh study, which was supported bya set of environmental, citizens, labor, and rate-payer groups.

Pending legislationIn addition to the policies discussed above, Con-gress currently is considering some measures witha connection to environmental cost analysis. Forexample, much of the debate over whether to ele-vate the EPA to cabinet-level status has concernedwhether the new agency would be required toperform cost-benefit analysis of proposed regula-tions. Proponents of a larger role for risk assess-ment in EPA decisionmaking argue it would helpthe agency set priorities and ensure that regula-tions are cost-effective. Opponents argue that re-quiring quantitative risk assessments will leavethe agency inflexible and open to endless scien-tific debate.8 Although environmental cost stud-ies of electricity generation represent only a smallsubset of proposed EPA studies, they highlightsome of the issues and controversies likely to sur-round broader use of cost-benefit analysis forevaluating regulations.

6~e temino]ogy here can ~ Confisingo me amendments refer to the “environmental benefits” of the Clean Air Act, whereas most s~dies

refer to the “environmental costs” of energy production. The terms are practically equivalent, although there is a subtle difference; environmen-

tal costs of energy production refers to those effects that could be avoided through additional pollution controls; environmental benefits of exist-ing regulations refers to those effects that are already avoided with existing controls. In either case, the analytical approaches are similw.

716 uSC. ~ 839.

8G. Lee, ‘s~alyz~g Risk Assessment at EpA,” The wu~hington Post, Mar. 8, 1994, p. Al 7.

—.


I State Laws and RegulationsEstimates of environmental costs are important 10a variety of state energy policies. Many state poli-cies require that electric utilities consider environ-mental costs in some way when they chooseamong electricity supply options (see figure 5-1 ).9

Nineteen states require utilities to use quantitativeestimates of environmental costs, including suchmeasures as adding monetary amounts to pricesbased on emissions per ton of pollutant.10 Anadditional 10 states and the District of Columbiarequire the use of qualitative criteria that attemptto account for environmental costs.l 1 Qualitativerequirements include such measures as listing var-

ious environmental impacts in proposals for newgenerating capacity. Three other states have legis-lative or regulatory activities in process that maylead to requirements for quantitative or qualitativeconsideration of environmental costs. 12

MAKING STUDIES MORE USEFUL INFEDERAL POLICYMAKINGWhen environmental cost studies are used in fu-ture federal energy policy, they will be subject 10continuing disputes over methodology and re-sults. Among these disputes are those over whichmethods are preferable in theory and which arepossible in practice. Such disputes are responsiblefor some, although not all, of the controversy overusing control cost approaches rather than damagecost approaches, using average rather than mar-ginal costs, and assessing the degree of internal-ization (see chapter 4 for an extended discussion).

More importantly, however, disputes will con-tinue because of differing assumptions aboutgoals, strategies, and methods. As described inchapter 4, many of the most contentious issues

surrounding current environmental cost studiescan be traced back to differences in underlying as-sumptions. These assumptions are more likely tobe reflected in, rather than resolved by, currentstudies. Consequently, users of environmentalcost studies need to evaluate the studies’ assump-tions carefully, lest they unintentionally accept as-sumptions that do not match their own.

Technical and methodological critiques of so-cial cost studies are important, but they are not theonly important critiques. A study may be techni-cally excellent, yet not meet the needs of Congressand executive branch agencies. The values and as-sumptions of any particular study may or may notoverlap with those of particular policy makers. If astudy’s values and assumptions differ radicallyfrom those of the relevant decisionmakers, theymay reject the study on those grounds alone. Suchan action would not be “ignoring science” butwould constitute the legitimate exercise of thesepolicymakers’ public responsibilities.

I Moving Beyond EvaluationConsideration of the assumptions that underlieenvironmental cost estimates is particularly im-portant for federal policymakers because the as-sumptions of some current studies may not berelevant to their needs. Some current studies as-sume a context of state public utility commissions(PUCs) and their regulation of utilities. In manycases, PUCs have funded the studies, or their ac-tions prompted other organizations such as utili-ties, utility groups, and environmental groups tofund them.

As a result, existing studies tend to be castlargely in an evaluative role—that is, they help de-cisionmakers choose among a fixed set of alterna-

91nfomatjon abut sPcific state regulations is drawn from F,mg and Galen, op. cit, footnote 1.

IoSeven s~tes (Califofia, Massachusetts, Minnesota, Nevada, New York, Oregon, and Wisconsin) specify monetary values by emission.

One state (New Jersey) specifies a monetary amount by energy typ: (e.g., electricity or gas). Two states (Iowa and Vermont) specify percentage

values by energy type. Nine states (Arizona, Georgia, Hawaii, Ilhnois, Missouri, Montana, Ohio, Texas, and Utah) require a quantitative ap-proach without specifying the method.

I I Arkansas, Colorado, Connecticut, Delaware, Idaho, North Carolina, Pennsylvania, South Carolina, Washington, and west Virginia.

12 Kansas, Oklahoma, and New Mexico.


No requirements

Qualitative requirements

Quantitative requirements

tives for electricity generation. PUCs are largelyconcerned with influencing utilities’ decision-making processes, and environmental cost studieshave been used to inform PUC efforts. In somecases, this influence is explicit; some states re-quire utilities to add certain monetary values,derived from environmental cost studies, to theestimated production costs of new facilities whenthe utilities consider capacity expansion. In othercases, this influence is implicit; some states re-quire utilities to derive and use their own cost val-ues. In both situations, the emphasis has been onderiving a total cost figure that is used to chooseamong electricity generating technologies.

The characteristics of energy technologies aresubstantially more malleable than implied by the

current use of environmental cost studies. Choicesabout pollution control technologies, mining andtransportation safety, power plant siting, wastedisposal, and impact mitigation approaches all af-fect the overall environmental costs of particularenergy sources. All these ways to affect the designand management of energy technologies are opento federal (and state) legislators and regulators, al-though current studies generally are not orientedtoward informing such approaches. Because ofthis, existing environmental cost studies may givea mistaken impression of the opportunities forminimizing the environmental costs of electricitygeneration.

For example, risks to workers in energy-relatedindustries can contribute to high overall figures


for the environmental cost of electricity genera-tion. These figures may indicate that an energysource relies on inherently hazardous operations,but it also may indicate that safety practices inthose industries are not as well developed as inothers. The appropriate policy decision may benot to reduce use of the energy sources that rely cnthe hazardous industry, but instead to increase ef-forts to understand and control the industry’s haz-ards. 13

In the past, the breadth of policy opportunitieshas not been lost on federal legislators and regula-tors. During the past two decades, Congress andfederal regulatory agencies have become active] yinvolved in the technological design of electrical.ygenerating technologies-particularly by man-dating air pollution control equipment and byfunding research in improved technologies. Thisapproach to federal regulation has alarmed someobservers and is partly responsible for the in-creased interest in alternatives to command-and-control regulations. This, in turn, has increasedinterest in economic approaches to environmentalcontrol and in studies of environmental costs.

In many ways, the use of environmental coststudies is analogous to the use of another type ofenvironmental assessment that has recentlygained popularity-life-cycle assessment (LCA).LCAs attempt to quantify the total environmentaldamage attributable to a particular product be-cause of its production, use, and disposal. They al-low two products to be compared based on theirenvironmental characteristics. For example,LCAs have been conducted for disposable andcloth diapers, paper and styrofoam cups, and plas-tic and paper shopping bags. After several years ofdebate, recent reports have concluded that LCAsare more useful as a tool for examining and im-proving design and production processes thanthey are as a method of selecting products with su-perior environmental characteristics. 14 Similarly,

one important role for environmental cost studiesis to suggest how electricity generating technolo-gies can be changed so they are more acceptable tosociety, rather than merely to indicate they shouldbe used to a greater or lesser degree.

| Emphasizing Nonquantitative ResultsThe impact of the assumptions and values implicitin different estimates is large enough that isolatedquantitative estimates of environmental cost arenearly meaningless. Such estimates becomemeaningful only in the context of a study’s as-sumptions and of the environmental effects thatare included and excluded. This conclusion indi-cates that isolated quantitative estimates of envi-ronmental cost studies should not be presented asthe final results of a study. This practice improper-ly focuses attention on the numerical results, rath-er than on the study’s assumptions.

Analysts themselves are often aware of the lim-itations of their methods, but that awareness doesnot always affect how studies are reported andused. For example, most environmental cost stud-ies to date have emphasized the tentative nature oftheir own quantitative estimates, the classes of ef-fects they did not consider, and the importance ofadditional research. After the studies are pub-lished, however, their results are often stripped ofthis important context and merely portrayed in nu-merical form.

Environmental cost studies often focus on whatappears to be the “bottom line’ ’—the monetaryvalue of environmental effects. In many cases, thisis the most speculative and controversial aspect ofthe study, and effects that are not monetized areoften ignored. In contrast, focusing on the earliercomponents of the study (e.g., the emissions andimpacts stages) would emphasize aspects that aremost amenable to scientific and technical resolu-tion.

13John p. Hol&en, “Energy Hazards: What To Measure, What To Compare,” Technology Review April 1982, P. 74.

14u.s. Congress, Offlce of Technology Assessment, Green Products by Design: Choicesfor a Cleaner Environment, OTA-E-541 (Wash-

ington, DC: Government Printing OffIce, September 1992).


This does not imply that monetization is a fun-damentally flawed enterprise. However, by itsvery nature, monetization allows results of envi-ronmental cost studies to be reported in a highlyaggregated form. This encourages use of resultswithout full understanding of the assumptions andvalues that underlie them. Placing greater empha-sis on reporting results of earlier phases of theanalysis (e.g., emissions and impacts assess-ments), and on clearly explaining the assumptionsand values that underlie estimates of monetarydamages, would help make the studies more valu-able for use in federal policymaking.

| Informing Legislative DecisionmakingA focus on disaggregated results and on explain-ing assumptions and values is important for rea-sons beyond mere accurate reporting or analyticalconvenience. Decisions about values are not theprovince of technical analysis. Instead, they be-long in a public arena to be debated and decidedby citizens and their publicly elected officials.Only when quantitative analyses clearly identifytheir underlying assumptions and values can they

inform and enlighten public debate.If the assumptions and embedded values of en-

vironmental cost studies are explained carefully,and if summary results present both quantitativeand qualitative aspects, they can be useful for leg-islative purposes. Quantitative aspects include notonly final environmental cost estimates, but alsodisaggregated results showing the relative impor-tance of various factors to the final estimate, sensi-tivity analyses showing how the results vary whenimportant inputs are varied, and an analysis of theuncertainty associated with important quantita-tive values. Qualitative aspects include identify-ing emissions that account for the majority of theimpacts in specific impact categories, identifyingalternative assumptions that will substantially al-ter the quantitative results, and identifying howthe results compare with other similar studies.Clearly, this approach to analyzing and presentingenvironmental cost estimates poses a substantialchallenge. However, without such an approach,environmental cost studies may prove to be oflittle use to policymakers.

Index

AAir emissions

Chernick and Caverhill study, 26Tellus Institute study, 23-24,26,42

Alachlor risks, 48Assumptions

average effects versus marginal effects, 55-57damage costs versus control costs, 52-55discounting, 60-62federal policymaking and, 46,70frameworks of, 62-65goals, 62,64influence on studies, 45internalization, 57-59managing uncertainty, 59-60methods, 64-65monetization, 47, 49, 50-52other studies on values and assumptions, 48quantification, 47,49-50,51-52strategies, 64-65

Australia study, 19-20Average vs. marginal effects, 55-57

BBernow, Stephen, 23Biewald, Bruce, 23Biosystems Analysis, 29Bonneville Power Administration study

contingent valuation, 39damage cost methods, 52-53discount rates, 61hedonic valuation, 38-39history and quantitative results summary, 28-30interstudy comparisons, 32, 36market valuation, 38

Boston Gas Co., 15,26BPA study. See Bonneville Power Administration

study

cCAAA. See Clean Air Act Amendments of 1990

California emission standards, 26California Energy Commission study, 19-20Cavanagh, Ralph, 30Caverhill, Emily, 26Chernick, Paul, 26Chernick and Caverhill study

categorization of effects, 20control cost methods, 52generation technology, 20-21history and quantitative results summary, 26interstudy comparisons, 33

Clean Air Act, 48,53,58Clean Air Act Amendments of 1990,6,68,69Clinton administration, 68Commission of the European Communities, 21-22,

26. See also DOE/EC studyComparison of studies. See Study comparisonsComputer model

New York State study, 22Congress. See Federal policymakingCongressional Research Service, 48Contingent valuation

criticisms, 41definition, 4,37non-use values and, 39, 40purpose, 39,41

Control cost methodscritiques, 53-54damage cost methods comparison, 52-55definition, 4impacts, 54supporters of, 43Tellus Institute study, 24-26underlying assumptions, 54-55use in current cost studies, 38, 42

Criteria used for selected studiescomprehensiveness, 13influence, 13methodological discussion, 15

CRS. See Congressional Research ServiceCV. See Contingent valuation

I 75


DDamage cost methods

control cost methods comparison, 52-55DOE/EC study, 22supporters of,-43

Damage evaluation, 11. See also Stages ofenvironmental cost studies

Department of Energy/Commission of the EuropeanCommunities. See DOE/EC study

Discountingcritiques, 61impacts, 61purpose, 60-61underlying assumptions, 62

DOE. See DOE/EC study; U.S. Department ofEnergy

DOE/EC study. See also Commission of theEuropean Communities; U.S. Department ofEnergy

advances over older studies, 7contingent valuation, 39damage cost methods, 52-53focus on specific sites, 56fundamental goals, 64history and quantitative results summary, 21-22internalization, 57

EEC. See Commission of the European Communities;

DOE/EC studyECO Northwest, 29Ecological systems, 11Electric Power Research Institute, 22Emissions identification, 10-11. See also Stages of

environmental cost studiesEmpire State Electric Energy Research Corporation,

22Energy Policy Act of 1992,6,67,68-69Environmental effects. See also Stages of

environmental cost studiesaverage effects versus marginal effects, 55-57

Environmental Protection Agency, 6,69EPA. See Environmental Protection AgencyEPRI See Electric Power Research InstituteESEERCO. See Empire State Electric Energy

Research CorporationExternalities. See also Internalization

economic theory of, 14-15as fourth stage of environmental effects, 13

FFederal laws, 6,67-69. See also specific lawsFederal policymaking

assumptions and, 46emphasis on nonquantitative results, 7,72-73environmental costs and federal revenue, 68federal laws, 6,67-69informing legislative decisionmaking, 7-8mismatch of state and federal goals, 6-7pending legislation, 69roles for environmental cost studies in, 67-73usefulness of disaggregated results, 7,73

Federal Republic of GermanyHohmeyer study, 26-27

Fossil fuelsHohmeyer’s study, 20Pace study, 23study differences, 15

Frameworks of assumptionsfundamental goals, 62,64methods, 64-65strategies, 64-65

Fraunhofer-Institute for Systems and InnovationResearch, 26

HHealth impacts

Hohmeyer study, 28Shuman and Cavanagh study, 30

Hedonic valuation, 4,37,38-39Hohmeyer, Olav, 26Hohmeyer study

categorization of effects, 20control cost methods, 52history and quantitative results summary, 26-28interstudy comparisons, 36mitigation cost valuation, 43monetization of effects, 49technology specificity, 20-21

IImpacts. See also Stages of environmental cost

studiesaverage versus marginal effects, 56-57control cost methods, 54discount rates, 61emissions and, 13,57evaluation of, 11identification of, 11internalization and, 58monetary damages and, 13monetization, 51quantification, 51uncertainty, 60

Industrial Economics, Inc., 22Internalization

critiques, 57-58

Index 177

impacts, 58underlying assumptions, 58-59

LLCA. See Life-cycle assessmentLegislation. See also Federal laws; State laws and

regulationspending legislation, 69

Life-cycle assessment, 72Location specificity, 21,56

MMarginal effects

average effects comparison, 55-57Marine oil spills

Chernick and Caverhill study, 26Market valuation, 4,37,38Marron, Donald, 23Massachusetts Department of Public Utilities, 26Minnesota/Wisconsin study, 19-20Mitigation cost valuation, 4,38,42-43Monetization. See also Valuation methods

approach in environmental studies, 47, 49critics of, 52federal policymaking and, 73impacts, 51policymaking and, 7underlying assumptions, 51-52

NNatural Resources Defense Council, 15,30Nero and Associates, 29Nevada study, 19-20New source performance standards, 33New York Public Service Commission, 22New York State Department of Public Service, 22New York State Energy Research and Development

Authority, 22,23New York State study

advances over older studies, 7contingent valuation, 39damage cost methods, 52-53history and quantitative results summary, 22-23internalization, 57software-based model, 22-23, 33study in progress, 3uncertainty, 60

Non-use values, 39,40Northwest Conservation Act Coalition, 15,30Northwest Power Planning Council, 28,69NSPS. See New source performance standardsNuclear power

Pace study, 23

Shuman and Cavanaugh study, 30

0Oak Ridge National Laboratory, 15,21-22ORNL. See Oak Ridge National LaboratoryOTA report summary

assumptions in cost studies, 5-6cost estimate findings, 3current laws and regulations, 6decisionmaking factors, 7-8framework of goals and values, 5-6monetization, 7policymaking, 6-8report in context, 2state regulatory commissions, 6-7valuation methods, 3-5

PPace study

categorization of effects, 20contingent valuation, 39control cost methods, 52externalities, 58generation technology, 20-21hedonic valuation, 38history and quantitative results summary, 23interstudy comparisons, 32, 33market valuation, 38mitigation cost valuation, 43monetization of effects, 49size of study, 15

Pace University Center for Environmental LegalStudies, 15

Pacific Northwest Electric Power Planning andConservation Act of 1980,6,28,68,69

Passive-use values, 40PLC, Inc., 26Policy. See Federal policymaking; State laws and

regulationsPublic utility commissions, 70-71PUCs. See Public utility commissionsPurpose of studies. See Structure and purpose of

studies

QQualitative criteria, 70,73Quantification. See also specific studies

approach in environmental studies, 47, 49critiques of, 49-50impacts, 51policymaking and, 70,73underlying assumptions, 51-52


RRCG/Hagler, Bailly, Inc., 15,22Resource Insight, Inc. See PLC, Inc.Resources for the Future, 21-22,48Revealed preference methods, 53RFF. See Resources for the FutureSecretary of Energy, 68-69

sShuman, Michael, 30Shuman and Cavanagh study

control cost methods, 52discount rate, 61estimate of highly speculative effects, 50history and quantitative results summary, 30interstudy comparisons, 36size of study, 15uncertainty, 60

Site specificity, 21,56Software-based model

New York State study, 22Sponsors of studies, 15Stages of environmental cost studies

damage valuation, 11, 13emissions identification, 10-11, 13externality as fourth stage, 13, 14-15impact identification and evaluation, 11, 13

State laws and regulations, 1,6-7,70Structure and purpose of studies, 10-11, 13Studies not reviewed

Australia study, 19-20California Energy Commission study, 19-20Nevada study, 19-20types of, 11Wisconsin/Minnesota study, 19-20

Study comparisonscategorization differences, 32-33cost estimate uncertainty, 36cost estimate variation, 33, 36domination of one effect category, 33independence of estimates, 31-32

Study differencesanalysts and sponsors, 15categorization of effects, 20energy sources, 15environmental effects, 15, 20location specificity, 21

methods, 15size and complexity, 15technology specificity, 20-21

Study similaritiescomprehensiveness, 13influence, 13methodological discussion, 15

Study structure and purpose, 10-11, 13Summary of report. See OTA report summaryTechnology specificity, 20-21

TTellus study

categorization of effects, 20control cost methods, 52control cost valuation, 24-26, 42history and quantitative results summary, 23-26interstudy comparisons, 33

uUncertainty

critiques, 59-60impacts, 60underlying assumptions, 60

Underlying assumptions. See AssumptionsU.S. Department of Energy, 21,23. See also

DOE/EC studyUse values, 40

vValuation methods. See also Control cost methods;

Damage cost methodscontingent valuation, 4, 37, 39,41-42control cost valuation, 42conversion of impacts to damages, 13determination of, 5disputes over methods, 4-5hedonic valuation, 4,37,38-39market valuation, 4, 37, 38mitigation cost valuation, 4, 38,42-43process, 3related issues, 36

wWisconsin/Minnesota study, 19-20

* U.S. GOVERNMENT P RINTING OFFICE: 1994 - 301-804 - 814/27413

Documents

Studies of the Environmental Costs of Electricity · Cost estimates can be made by either: 1) evaluat-ing the health and environmental impacts from those emissions and estimating