Coal: “Externalities” Can be Positive, Not Only Negative

A new study from the Center for Health and the Global Environment at the Harvard Medical School, Full Cost Accounting for the Life Cycle of Coal, estimates that the negative externalities of coal-fired electricity generation are two-to-three times as great as the actual price of the electricity itself. Wow–so much for the cheap price of electricity from coal itself being a social good. And forget that decades of ever more stringent air and water regulation has internalized the so-called social cost of coal-fired power plants. And forget that carbon dioxide (CO2) has positives, not only negatives, for the biosphere.

So forgetting all this, and taking the report’s analytics at face value, it is concluded that the FULL COST of coal makes “wind, solar, and other forms of nonfossil fuel power generation … economically competitive.” As such, the study calls for phasing out coal and phasing in “cleanly powered smart grids [and] using place-appropriate alternative energy sources.”

However it is not a stretch to think that the conclusions of this Harvard study were preordained. Delving into the literature shows that a different group of folks could set out to examine the same thing even selecting from among the same pool of climate, economic, and epidemiological studies and arrive at a largely different conclusion—a conclusion that the externalities from coal-fuelled electricity are only slightly negative, and perhaps even positive.

Basically, at this point in time, the conclusion is largely dictated by the storyteller.

Center for Health and Global Environment

The Center for Health and Global Environment is a hot bed for climate alarmism and anti-coal propaganda. The latest paper, with so much missing in its analysis, builds in that tradition.

The new paper acknowledges its lineage from earlier work from Greenpeace and thank James Hansen for comments. Epstein et al. also state: “The genesis for this paper was a Conference—“The True Costs of Coal: Building a Healthy Energy Future” that was “supported by the Energy Foundation and the Rockefeller Family Fund.”

The Energy Foundation describes itself as

a partnership of major donors interested in solving the world’s energy problems. Our mission is to advance energy efficiency and renewable energy—new technologies that are essential components of a clean energy future.

The Rockefeller Family Fund lists among its missions

public education on the risk of global warming and implementation of sound solutions, conservation of natural resources, protection of health as affected by the environment, meaningful implementation and enforcement of the nation’s environmental laws, and public participation in national environmental policy debates.

It seems hard to think that the intent of the Epstein et al. work was anything other than to find large negative externalities from using coal to produce electricity and to cast coal-fired electricity in a negative light.

Positive Externalities from Coal?

While certainly the burning of coal for power generation produces some costs that lie outside the market forces acting to establish the price of electricity, the magnitude of those externalities is anybody’s guess. Epstein et al. have extended their wild guess. Last year, the National Research Council extended theirs—it was about half that of the Epstein group’s “best estimate.” And, from judicious use of the scientific literature, yet lower estimates can be justified. In fact, there are even some estimates that the externalities from coal-fired electricity may prove to be positive.

The issue as to the size of the externalities boils down to three main considerations:

1) the relationship between air pollution levels and human health/mortality

2) the monetary value placed on human life

3) the monetary damages from climate change caused by the burning of coal

The scientific and economics literature provide a wide range of guidance on each of these factors. And from this guidance, Epstein et al. develop low, high, and “best estimate” determinations of the externalities from electricity generated from the burning of coal. Epstein et al. have a tendency to give more preference for research conducted by various members in or close to their group. And since Epstein’s Center for Health and the Global Environment is focused on playing up the negative impacts of anthropogenic climate change, their “best estimate” tends to incorporate some rather high-end formulations.

As briefly mentioned earlier, the National Research Council last year produced a report on a similar subject—Hidden Costs of Energy: Unpriced Consequences of Energy Production and Use—which included a more thorough examination of the literature and factors that give rise to the huge range of uncertainty in determining the three items listed above.

Particularly enlightening is a Table produced by the NRC showing the influence of using different discount rates and different assumption about climate change damage when pricing the effect of climate change from anthropogenic greenhouse gas emissions.

TABLE Indicative Marginal Global Damages from Current GHG Emissions ($/Ton CO₂-eq)

Table 5-9 from the NRC report, Hidden Costs of Energy: Unpriced Consequences of Energy Production and Use.

The NRC notes that

Depending on the extent of future damages and the discount rate used for weighting future damages, the range of estimates of marginal global damages can vary by two orders of magnitude, from a negligible value of about $1 per ton to $100 per ton of CO2-eq. Roughly an order of magnitude in difference can be attributed to discounting assumptions, and another to assumptions about future damages from current emissions.

In other words, you can get any number you want—from a “negligible” $1 per ton to a huge $100/ton of carbon-equivalent greenhouse gas emissions.

But, guidance isn’t entirely lacking on the climate front. There is still a general lack of evidence that shows a statistically significant relationship between anthropogenic climate change and weather-related damage (estimates of past, present, and future damages are grossly dominated by demographic changes rather than climate changes). And the rise in global temperature is poking along at a rather less-than-anticipated rate (which could mean that future rates of model-projected temperature increase are on the high side). Together, this suggests that we ought be giving a bit more credence to the left side of the Table (i.e. “relatively low damages” from global warming) than to the right side (i.e., “higher” damages).

And as far as whether we should be focusing on the top or the bottom of the Table (i.e. which discount rate is appropriate) this is an ongoing field of battle that basically pits the supporters of Nicholas Stern’s (infamous) 2007 analysis (which relies on using low discount rates resulting in huge future damage valuations), verses the backers of the analyses done by William Nordhaus and by Richard Tol (which use higher discount rates and produce much lower climate change damage projections). See the NRC report or the Wikipedia page for economic details and comments on this debate.

The other area of contention involves the human costs of particulate emissions (or its precursors) from the burning of coal for electricity. While the levels of emissions of this type of air pollution have been greatly reduced in the U.S., nevertheless, some level of emissions continue.

There has been a good deal of research over the years aimed towards assessing the impacts of human health from air pollution from coal-fired utilities. And empirical relationships have been developed which attempt to link atmospheric levels of various air pollutants to changes in the human mortality rate. The sensitivity portrayed in these concentration-response curves varies largely from research study to research study.

Epstein’s group preferred to use a set of high sensitivity concentration-responses that were developed by researchers (Schwartz et al., 2008) who are closely associated with Epstein’s Center for Health and the Global Environment. The NRC report chose instead to rely on a set of concentration-response curves which showed a much more muted mortality response to air pollutant levels (Pope et al., 2002). The difference is about three-fold, with the Schwartz et al. response curves producing much higher premature mortality than the Pope et al. curves.

And the final piece of the puzzle is how much to value the premature loss of life. The “value of statistical life” (VSL) has been variously determined by different researchers and methodologies. It is taken in both the Epstein et al. and the NRC report as being $7.5 million (in 2008 dollars)—a value commonly used by the Environmental Protection Agency. However, there exists strong support in the literature for lower values (for example Mrozek and Taylor (2002), propose a VSL of $2-3 million (in 1998 dollars), more information on establishing a VSL can be found in Brannon (2004)). Obviously, using a lower VSL results in lower monetary costs from air pollution. As a sensitivity study, the NRC did consider the impacts of using the Mrozek and Taylor VSL value and found that it reduced the costs of coal-fired air pollution by nearly 2/3rds.

Putting it all of the above together—and throwing in some other minor damages estimates for good measure and greater shock value (e.g., number of people run over by trains transporting coal, excess mental retardation from mercury emissions, etc.)—Epstein et al. arrive at low, “best estimate”, and high values for the annul size of the negative externalities in the U.S. from coal-fired electricity production. They are $175 billion, $345 billion, and $523 billion, respectively.

Had Epstein et al. factored in a lower value of life and smaller climate damage estimates (more in line with recent observations) and their low end could drop to about $50 billion per year.

Furthermore, if this “hidden costs” analysis had been performed by a different set of researchers, a value of $50-100 billion could have been pretty firmly established as a “best estimate” with a low end that probably would include the possibility of a net positive externality from coal-fired electricity.

Conclusion

Epstein et al.’s much-publicized conclusion (built from their best and high estimates) that the hidden costs of coal should add 18 to 27 cents per kWh to the price of electricity in the U.S. and thus elevate the economic competitiveness of wind, solar, and other forms of nonfossil fuel power generation is idealistic driven and far too high.

Justifiable estimates could compute the hidden costs at less than a nickel per kWh—an addition that really doesn’t do so much to boost the economic prospects of existing forms of Epstein et al.’s favorite forms of nonfossil fuel-based energy production. Moreover, the elementary fact that wind and solar are intermittent (nondispatchable) energy sources compared to fossil-fuel-fired plants is ignored in the analysis.

A start-over is called for.

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References:

Brannon, I., 2004-2005, What is a life worth? Regulation, Winter, 61-63,

http://www.cato.org/pubs/regulation/regv27n4/v27n4-8.pdf

Epstein, P.R., et al., 2011. Full cost accounting for the life cycle of coal. Annals of the New York Academy of Sciences, 1219, 73-98, http://onlinelibrary.wiley.com/doi/10.1111/j.1749-6632.2010.05890.x/pdf

Mrozek, J.R., and L.O. Taylor, What determines the value of life? A meta-analysis. Journal of Policy Analysis and Management, 21, 253-270.

National Research Council, 2010. Hidden Costs of Energy: Unpriced Consequences of Energy Production and Use. National Academies Press, Washington DC, pp. 474. http://www.nap.edu/catalog.php?record_id=12794

Pope, C.A., et al., 2002. Lung cancer, cardiopulmonary mortality, and long-term exposure to fine particulate air pollution. Journal of the American Medical Association, 287(9),1132-1141.

Schwartz, J., et al., 2007. The effect of dose and timing of dose on the association between airborne particles and survival. Environmental Health Perspectives, 116, 64–69.

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