External costs of coal

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In economics, an external cost, or externality, is a negative effect of an economic activity on a third party.[1] When coal is mined and used to generate power, external costs include the impacts of water pollution, toxic coal waste, air pollution, and the long-term damage to ecosystems and human health.[2]

Types of external costs

External costs of coal mining and power generation include the following:[3]

  • Reduction in life expectancy (particulates, sulfur dioxide, ozone, heavy metals, benzene, radionuclides, etc.)
  • Respiratory hospital admissions (particulates, ozone, sulfur dioxide)
  • Congestive heart failure (particulates and carbon monoxide)
  • Non-fatal cancer, osteroporosia, ataxia, renal dysfunction (benzene, radionuclines, heavy metal, etc.)
  • Chronic bronchitis, asthma attacks, etc. (particulates, ozone)
  • Loss of IQ (mercury)
  • Degradation and soiling of buildings (sulfur dioxide, acid deposition, particulates)
  • Reduction of crop yields (NOx, sulfur dioxide, ozone, acid deposition); some emissions may also have a fertilizing effect (nitrogen and sulfur deposition)
  • Global warming (carbon dioxide, methane, nitrous oxide)
  • Ecosystem loss and degradation

One example: mortality caused by fine particulates

Fine particulates are released directly from coal plants and also produced indirectly by sulfur dioxide emissions.[4] According to a 2004 study released by the Clean Air Task Force, fine particulates from power plants result in nearly 24,000 annual deaths, with 14 years lost on average for each death.[4] Based on social decisions in other contexts such as transportation and medicine, researchers report (see below) that American society is willing to spend $129,090 to avoid the loss of a year of life.[5] This suggests that society would be willing to spend at an additional $40 billion (i.e., 24,000 annual deaths x 14 years lost x $129,000 per year lost) for alternative ways of generating electricity that did not produce deadly pollution. With US coal plants generating about 2 billion Gigawatt hours annually, the expenditure of an additional $40 billion would raise the cost of electricity by about two cents per kilowatt hour.[6]

Estimation of external costs by the ExternE project

Since 1991, the ExternalE (External costs of Energy) European Research Network, including more than 50 research teams in over 20 countries, has been studying the costs of environmental damage associated with energy production.[7] That research aims at advancing the goal of the European Union, as expressed in its Fifth and Sixth Programmes, and in the Göteborg Protocol of 2001, to make sure that the costs of energy are properly adjusted to include the damage produced by the production of energy. Otherwise, damaging ways of producing energy will appear to be cheaper than they actually are, and cleaner and safer production methods will be disadvantaged.[7]

Policies for adjusting energy costs may include taxes or fees on dirty sources, subsidies for cleaner sources, or a combination of the two methods.

In 2007, researchers at the Paul Scherrer Institute in Switzerland published the following estimates for external costs of various coal-based electrical generating technologies.[8] These estimates indicate that externalities of older coal plants are many times greater than those of new plants.

Technology Excluding CO2 Including CO2
Conventional coal 5.7 - 11.7 7.5 - 13.6
Conventional coal with SO2 and NOx scrubbing 0.7 - 1.0 2.5 - 3.0
IGCC coal with CO2 scrubber 0.8 - 1.0 1.1 - 1.4

Table 1: External costs for various types of coal plants. (1995 Euro cents per kilowatt hour.)


How much is a year of human life worth?

Although it is impossible to place a monetary value on human life, economic decisions are frequently made that indicate how much money society is willing to spend to extend human life in contexts such as medical treatments and the design of transportation systems. After reviewing various indicators, researchers at Stanford's School of Medicine and School of Business, and Wharton's School of Management reported that American society's willingness to support substantial public expenditures to extend individual lives through kidney dialysis treatment suggests that in the United States, the monetary value of one "quality adjusted year of life" (QALF) was $129,090 in the year 2008.[5] Results from alternative ways of valuing life, which range as high as $21 million per statistical year, suggest that the $129,090 figure should be considered a lower bound.[5]

Studies and reports of coal externalities in U.S.

2009 National Research Council Report on External Costs

In 2009 the National Research Council released a report on the “external costs of coal" caused by various energy sources over their entire life cycle, from extraction to production to use and emissions, effects not factored into the market cost of the fuels. The report Hidden Costs of Energy: Unpriced Consequences of Energy Production and Use was released in October 2009. Requested by Congress, the report was sponsored by the U.S. Department of the Treasury, National Academy of Sciences, National Academy of Engineering, Institute of Medicine, and National Research Council make up the National Academies. Putting together a diverse committee of experts including scientists, economists, and geologists, the committee estimated the use of fossil fuels had a hidden cost to the U.S. public of $120 billion in 2005, a number that reflects primarily health damages from air pollution associated with electricity generation and motor vehicle transportation. The estimate was derived from monetizing the damage of major air pollutants -- sulfur dioxide, nitrogen oxides, ozone, and particulate matter – on human health, grain crops and timber yields, buildings, and recreation.

The figure does not include damages from climate change, harm to ecosystems, effects of some air pollutants such as mercury, and risks to national security, which the report examines but does not monetize.

The committee also separately derived a range of values for damages from climate change, and found that each ton of carbon dioxide emissions will be far worse in 2030 than now: “even if the total amount of annual emissions remains steady, the damages caused by each ton would increase 50 percent to 80 percent.”

Costs of Coal Plants

According to the National Research Council report, in 2005 the total annual external damages from sulfur dioxide, nitrogen oxides, and particulate matter created by burning coal at 406 coal-fired power plants (which produce 95 percent of the nation's coal-generated electricity), were about $62 billion. A relatively small number of plants -- 10 percent of the total number -- accounted for 43 percent of the damages. Further, coal-fired power plants are the single largest source of greenhouse gases in the U.S., emitting on average about a ton of CO2 per megawatt-hour of electricity produced, creating climate-related monetary damages range from 0.1 cents to 10 cents per kilowatt-hour, based on modeling studies.

The report also found that burning natural gas generated far less damage than coal, although still significant: a sample of 498 natural gas fueled plants (71 percent of gas-generated electricity) produced $740 million in total nonclimate damages in 2005. The life-cycle damages of wind power, which produces just over 1 percent of U.S. electricity, were found to be small when compared with those from coal and natural gas.

Costs of Transportation

Transportation, which today relies almost exclusively on oil, accounts for nearly 30 percent of U.S. energy demand. According to the report, in 2005 motor vehicles produced $56 billion in health and other nonclimate-related damages.

2009 Risk Analysis estimate of coal pollutant costs

In 2009, Jonathan Levy of Harvard University and his colleagues published a study suggesting that coal pollution's health impacts have been underestimated. Dr. Levy, Joel Schwartz and Lisa K. Baxter completed a study in 2009, "Uncertainty and Variability in Health-Related Damages from Coal-Fired Power Plants in the United States", published in the journal Risk Analysis, that models the monetized health damages associated with 407 coal-fired power plants in the United States. Their numbers vary, based on age of facilities and types of coal used. The study offers a range of health-related damages of $30,000 to $500,000 for every ton of fine particulate matter, or PM2.5, pollution, with a median rate of $72,000 per ton. For each ton of sulfur dioxide pollution, or SOx, the health damage ranges from $6,000 to $50,000 per ton, with a median rate of $19,000. For nitrogen oxide pollution, or NOx, the per-ton rate ranges from $500 to $15,000, with a median cost of $4,800.[9]

According to the Pittsburgh Post-Gazette, based on 2009 pollution totals, the 16 coal-fired power plants and 150 other major sources of pollution in the 14-county region of Pennsylvania generated 97,077 tons of NOx, 443,107 tons of SOx and 7,000 tons of PM2.5. Using the median per-ton costs of health damage, the total annual health damage from the region's major sources of pollution is $9.4 billion.T hat cost also doesn't include coal's impact on environmental resources and aesthetics.[9]

2010 Clean Air Task Force report on health costs

A 2010 report from the Clean Air Task Force, The Toll From Coal found that, in the United States, particle pollution from existing coal power plants is expected to cause some 13,200 premature deaths in 2010, as well as 9,700 additional hospitalizations and 20,000 heart attacks.[10]

Estimated mortality figures for 2010 have Pennsylvania leading the nation with 1,359 premature deaths, 1,016 people admitted to the hospital, and 2,298 additional heart attacks. Ohio comes in second with 1,221 additional premature deaths; New York takes third with 945 dead from coal pollution. Per capita, the figures change slightly: West Virginia is first in the nation, with an estimated 14.7 coal-related deaths per 100,000 adults. Pennsylvania and Ohio tie for second, with 13.9; Kentucky comes in third at 12.6.[10]

The report found that the total monetized value of these adverse health impacts amounts to more than $100 billion per year. This burden is not distributed evenly across the population. Adverse impacts are especially severe for the elderly, children, and those with respiratory disease. In addition, the poor, minority groups, and people who live in areas downwind of multiple power plants are likely to be disproportionately exposed to the health risks and costs of fine particle pollution.[10]

In the previous version of this study, done in 2004, it was estimated that coal pollution caused about 24,000 premature deaths annually. The authors cited EPA action in 2005 under the Clean Air Interstate Rule (CAIR) as resulting in the declining mortality figures. Though CAIR was struck down in Federal court in 2008, the pollution reduction requirements remain in effect until a replacement is established. In making their projections, the authors of the study assume similarly stringent requirements will be in place for the remainder of 2010.[10]

Even with much decreased numbers, the report says sulfur dioxide and nitrogen oxide emissions from coal power plants will "continue to take a significant toll on the health and longevity of millions of Americans." Overall, the report says "among all industrial sources of air pollution, none poses greater risks to human health and the environment than coal-fired power plants."[10]

2010 Report: New EPA regulations could make old coal plants prohibitively expensive

According to the 2010 report, "Impact of EPA Rules on Power Markets," by Credit Suisse, tougher federal air pollution rules that will be coming in the next few years could prompt electricity companies to close as many as 1 in every 5 coal-burning power plants in America, primarily facilities more than 40 years old that lack emissions controls. Part of the reason is that following the regulations would make power companies pay to prevent emissions that were previously health and environmental externalities.[11]

The regulations being crafted by the Environmental Protection Agency (EPA), expected to go into force next April and November 2011 in accordance with the Clean Air Act, are part of a long ratcheting back of mercury, acid rain, and smog-forming emissions from utility smokestacks. The study found that the EPA rules, combined with a recent drop in the price of natural gas, could over the next four to five years cause the utility industry to accelerate retirement of old coal-fired power plants rather than spend to upgrade the plants' emissions controls.[11]

Coal power, with about 340,000 megawatts of generating capacity, today produces about half of US electricity. After expected emissions upgrades, the coal fleet will continue to have plants, producing about 103,000 megawatts, that are still "lacking any major emission controls," the study says. The oldest, smallest coal plants with few emissions controls make up an "at-risk" of closure portion that account for about 20 percent of total US coal-fired generating capacity, or 69,000 megawatts. The cost to cut sulfur dioxide (SO2), nitrogen oxides (NOx), and mercury emissions could run $50 billion to $70 billion, not counting the oldest plants. Upgrading those would cost another $80 billion to $110 billion.[11]

2010 Report finds EPA underestimating external costs of coal

A 2010 report suggests the EPA is underestimating the net savings from SO2 and NOx regulations because it focuses almost exclusively on direct health costs, which does not capture the full impact of the pollution on the economy, such as "higher labor and health insurance costs, lost jobs, lost state and local tax revenue, and higher gasoline prices." The report, "Expensive Neighbors: The Hidden Cost of Harmful Pollution to Downwind Employers and Businesses" by electricity industry expert Dr. Charles J. Cicchetti finds that power plants without SO2 and NOx scrubbers are imposing an estimated $6 billion in annual costs on downwind businesses.[12]

Specifically, the report finds that, due to unscrubbed coal plants, between 2005 and 2012:[12]

  • Businesses will lose $47 billion in costs;
  • Over 360,000 jobs will be lost;
  • State and local governments will lose almost $9.3 billion in tax revenue;
  • Families and businesses in polluted areas will pay $26.0 billion more for reformulated gasoline as a result of ongoing pollution.

When these costs are added to health costs to individuals, the benefits of the EPA's upcoming Clean Air Transport Rule, which would put tighter limits on ozone pollution, "exceed compliance costs by about 100 times." Cicchetti concludes: "There are people who will argue that the benefits of a greener environment are fine when the country is at full employment. But when the country is suffering unemployment, when states are having trouble balancing budgets and businesses are having trouble keeping employees, we can't afford the investments and efforts to make the air cleaner. By drilling down to the employment and businesses effects, showing that those benefits outweigh the additional costs, I've tried to show that we should do it sooner rather than later, that it will reduce the costs of employment in affected areas and stimulate jobs. Now is a better time to get on with the task of making the air better and healthier."[12]

2011 Harvard report: external costs of coal up to $500 billion annually

A Feb. 2011 report, "Mining Coal, Mounting Costs: the Life Cycle Consequences of Coal," led by associate director of the Center for Health and the Global Environment at Harvard Medical School Dr. Paul Epstein, found that accounting for the full costs of coal would double or triple its price. The study, which was released in the Annals of the New York Academy of Sciences, tallied the economic, health and environmental costs associated with each stage in the life cycle of coal – extraction, transportation, processing, and combustion - and estimated those costs, which are borne by the public at large, to be between $175 billion and $500 billion dollars annually.[13]

In terms of human health, the report estimated $74.6 billion a year in public health burdens in Appalachian communities, with a majority of the impact resulting from increased healthcare costs, injury and death. Air pollutants from combustion accounted for $187.5 billion, mercury impacts as much as $29.3 billion, and climate contributions from combustion between $61.7 and $205.8 billion. The study discussed a number of other impacts that are not easily quantified, including effects of heavy metal toxins and carcinogens released into water supplies as part of coal mining and processing; the death and injury of workers mining coal; and the social impacts in mining communities.[13]

Table 1: Estimates of external costs of coal in cents/kWh of electricity (2008 US$)[14]

Type of impact Low Best High
Land disturbance 0.00 0.01 0.34
Methane emissions from mines 0.03 0.08 0.34
Public health burden in Appalachia 4.36 4.36 4.36
Fatalities due to coal transport 0.09 0.09 0.09
Air pollutants from combustion 3.23 9.31 9.31
Lost productivity from mercury emissions 0.01 0.10 0.48
Excess mental retardation from mercury emissions 0.00 0.02 0.19
Excess cardiovascular disease from mercury emissions 0.01 0.21 1.05
Climate damage from combustion emissions of CO2 and N2O 1.02 3.06 10.20
Climate damage from combustion emissions of black carbon 0.00 0.00 0.01
Subsidies 0.16 0.16 0.27
Abandoned mine lands 0.44 0.44 0.44
Total 9.36 17.84 26.89


The study concluded:

"Our comprehensive review finds that the best estimate for the total economically quantifiable costs, based on a conservative weighting of many of the study findings, amount to some $345.3 billion, adding close to 17.8¢/kWh of electricity generated from coal. The low estimate is $175 billion, or over 9¢/kWh, while the true monetizable costs could be as much as the upper bounds of $523.3 billion, adding close to 26.89¢/kWh. These and the more difficult to quantify externalities are borne by the general public." The average residential price of electricity at the time of the report is 12¢/kWh.[13]

Skeptical Science notes that when the coal externalities of the study are included in coal's price, it increases the levalized costs to approximately 28 cents per kWh, which is more than the 2009 U.S. Energy Information Administration cost of hydroelectric, wind (onshore and offshore), geothermal, biomass, nuclear, natural gas, and solar photovoltaics, and is on par with solar thermal, although the costs of solar thermal are falling.[15]

The study noted that its estimates did not include the full cost of coal:[13]

"Still these figures do not represent the full societal and environmental burden of coal. In quantifying the damages, we have omitted the impacts of toxic chemicals and heavy metals on ecological systems and diverse plants and animals; some ill-health endpoints (morbidity) aside from mortality related to air pollutants released through coal combustion that are still not captured; the direct risks and hazards posed by coal sludge, coal slurry, and coal waste impoundments; the full contributions of nitrogen deposition to eutrophication of fresh and coastal sea water; the prolonged impacts of acid rain and acid mine drainage; many of the long-term impacts on the physical and mental health of those living in coal-field regions and nearby MTR sites; some of the health impacts and climate forcing due to increased tropospheric ozone formation; and the full assessment of impacts due to an increasingly unstable climate."[13]

2011 American Economic Review study

A 2011 American Economic Review study by Nicholas Z. Muller, Robert Mendelsohn, and William Nordhaus. "Environmental Accounting for Pollution in the United States Economy" creates a framework for calculating the air pollution externalities of industries, called "gross external damages" (GED), and estimates that coal creates roughly $53 billion in damages a year - a cost that is over twice as high as the market price of the electricity. The estimate does not include "external effects such as those that take place through water, soils, noise, and other media," nor carbon dioxide and its effect on climate change. When the authors add in estimates of the cost of carbon dioxide pollution, they find that the damages caused by oil- and coal-fired power plants are between 30 and 40 percent higher.[16]

Most coal mine reclamation funds paid by taxpayers

In January 2010, the AP Press reported that $395 million was available for abandoned coal mine reclamation funds provided by the U.S. Department of the Interior. Recipients can apply to the Interior Department's Office of Surface Mining Reclamation and Enforcement for funding for specific projects. Part of the money - $150 million - comes from fees based on U.S. coal production. The remaining $245 million comes from the U.S. Treasury, or taxpayers. Since 1977, the program has provided more than $7 billion to clean up more than 285,000 acres.[17]

2011 CIEL Report finds World Bank did not consider externalities of Eskom Plant

A March 2011 report by the Center for International Environmental Law (CIEL), “Fossilized Thinking: The World Bank, Eskom, and the Real Cost of Coal” examined the economics underlying the World Bank’s $3 billion loan for the Eskom plant, evaluating whether the Bank adequately considered the project's impacts on human health and the environment and the likely economic costs of these impacts. The Bank’s operational policies require that such externalities be taken into account to determine whether a project’s long-term economic benefits outweigh its costs.

CIEL’s analysis concluded that the Bank failed to adequately address and quantify important negative environmental effects, such as water scarcity and quality, air quality, and transboundary impacts. Nor did the Bank fully address the public health impacts associated with the environmental consequences of coal-based power. Steve Porter, Climate Program Director at CIEL, said: “This project highlights a broader problem in World Bank funding. Because all of the costs have not been accounted for, coal projects like Eskom have been unfairly favored, which means that there has never been a real consideration of alternatives, such as wind, solar and other alternative energy sources.”

The report was released as the World Bank conducts an Energy Strategy Review process, as well as a review of the Eskom project by the Bank’s Inspection Panel. CIEL’s report calls on The World Bank to consider the social and environmental impacts of Eskom, but the Inspection Panel is unlikely to issue its report before the conclusion of the Energy Strategy Review.

External costs of coal in Australia

A 2009 study on the negative effects of power generation by the Australian Academy of Technological Sciences and Engineering (ATSE), "The hidden costs of electricity: externalities of power generation in Australia" calculated the greenhouse impacts and health damage costs of different power generation technologies including coal, gas, wind, solar photovoltaic, solar thermal, geothermal, carbon capture and storage, and nuclear energy, and determined that health costs of burning coal are equivalent to a national health burden of around $A2.6 billion per annum. Coal-fired power stations also produce more greenhouse gases per unit of energy than any other type of power station. Combining greenhouse and health damage costs for Australia gives representative total external costs of $A52/MWh for brown coal, $A42/MWh for black coal and $A19/MWh for natural gas. By the ATSE analysis, carried out before the costs of the 2011 Fukushima nuclear meltdown could begin to be calculated (ATSE specifically excluded nuclear disaster costs), the external costs of nuclear power would have been around $A7/MWh. The external costs of genuinely renewable sources of power generation, such as wind and solar power, are even less. If the external costs of burning coal were recovered by a coal tax, coal would be the most expensive of all energy-generating fuels.

Estimated cost of air pollution in Europe

A 2011 analysis by the European environment agency (EEA), 'Revealing the costs of air pollution from industrial facilities in Europe,' estimates that air pollution from industry costs Britain £3.4bn-£9.5bn a year in health and environmental damage. When CO2 costs are included, the figure rises to £9.5bn-£15.5bn. The industrial facilities covered by the analysis include large power plants, refineries, manufacturing combustion and industrial processes, waste and certain agricultural activities. Emissions from power plants contributed the largest share of the damage costs (estimated at €66–112 billion). Other significant contributions to the overall damage costs came from production processes (€23–28 billion) and manufacturing combustion (€8–21 billion). Sectors excluded from the EEA analysis include transport, households and most agicultural activities – if these were included the cost of pollution would be even higher.

A small number of individual facilities cause the majority of damage costs. Three quarters of the total damage costs were caused by the emissions from just 622 industrial facilities – 6 % of the total number. The facilities with emissions associated with a high damage cost are in most cases some of the largest facilities in Europe which release the greatest amount of pollutants. Carbon dioxide (CO2) emissions contribute the most to the overall damage costs, approximately €63 billion in 2009. Other air pollutants, which contribute to acid rain and can cause respiratory problems - sulphur dioxide (SO2), ammonia (NH3), particulate matter (PM10) and nitrogen oxides (NOx) - were found to cause €38-105 billion of damage a year.[18]

Resources

References

  1. Externality vs Public Goods Hanming Fang, Duke University
  2. "Damages assessed," ExternE website, accessed March 2009
  3. "Damages assessed," ExternE website, accessed March 2009
  4. 4.0 4.1 Conrad G. Schneider, Abt Associates, "Dirty Air, Dirty Power: Mortality and Health Damage Due to Air Pollution from Power Plants," Clean Air Task Force, June 2004 (Synopsis)
  5. 5.0 5.1 5.2 "Cost-effective Medical Treatment: Putting an Updated Dollar Value on Human Life," Knowledge@Wharton, April 30, 2008
  6. Coal-fired power plant capacity and generation
  7. 7.0 7.1 "Introduction," ExternE web page, accessed March 2009
  8. Peter Rafaj and Socrates Kypreos, "Internalisation of external cost in the power generation sector: Analysis with Global Multi-regional MARKAL Model," Energy Policy 35(2): 828:843, Energy Economics Modelling Group, General Energy Department, Paul Scherrer Institute, 2007
  9. 9.0 9.1 David Templeton and Don Hopey, "'A union president's worst nightmare': Report shows widespread illness among power plant workers" Pittsburgh Post-Gazette, Dec. 19, 2010.
  10. 10.0 10.1 10.2 10.3 10.4 Matthew McDermott, "Coal Pollution Will Kill 13,200 Americans This Year & Cost $100 Billion in Additional Health Care Bills" Treehugger, Sep. 13, 2010.
  11. 11.0 11.1 11.2 Ken Stewart, "Is coal power headed for a downsizing in US?" CS Monitor, October 20, 2010.
  12. 12.0 12.1 12.2 David Roberts, "New report shows dirty coal doing even more damage than you thought " Grist, Dec. 9, 2010.
  13. 13.0 13.1 13.2 13.3 13.4 "Life-cycle study: Accounting for total harm from coal would add 'close to 17.8¢/kWh of electricity generated'” Climate Progress, Feb. 16, 2011.
  14. Paul R. Epstein et al, "Mining Coal, Mounting Costs: the Life Cycle Consequences of Coal," Annals of the New York Academy of Sciences, 1219 (2011) p. 92
  15. "The True Cost of Coal Power" Skeptical Science, March 18, 2011.
  16. Muller, Nicholas Z., Robert Mendelsohn, and William Nordhaus. "Environmental Accounting for Pollution in the United States Economy.' American Economic Review, 101(5): 1649–75. Also available at https://sites.google.com/site/nickmullershomepage/home/current-cv
  17. "W.Va. starts spending $51M in reclamation funds" PhillyBurbs, Jan. 3, 2010.
  18. "Industrial air pollution cost Europe up to €169 billion in 2009, EEA reveals" European environment agency, Nov 24, 2011.

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