Hidden costs of energy: Unpriced consequences of energy production and use


In economics, the word externality refers to costs or benefits of a good or service not reflected in its price. For example, making gasoline requires petroleum extraction, transportation, and refinement; driving creates pollution, noise and congestion.  These in turn cause health and environmental damage.

To help consumers, businesses, and organizations make optimal choices, Congress asked the National Resource Council to assess the cost of energy production and use. The results are available in “Hidden Costs of Energy: Unpriced Consequences of Energy Production and Use,” published in 2010.

The committee that that wrote the report concentrate on air pollution created by energy production and use, including sulfur dioxide, nitrogen oxides, and particulate matter, on human health, crops, buildings, and recreation. When possible, it estimated was the damages in 2005 and what the damages would be in 2030 if current policies continue.

  • Coal, which accounts for half the electricity produced in the United States, caused about $62 billion in nonclimate external damages, the equivalent of 3.2 cents per kilowatt hour. Coal emits an average of one ton of CO2 per megawatt-hour of electricity produced. Climate-related damages range from 0.1 to 10 cents per kilowatt hour.
  • Burning natural gas to generate electricity caused $740 million in nonclimate damages in 2005, the equivalent of 0.16 cents per kilowatt hour. Climate damages from natural gas are half that of coal, ranging from 0.05 to 5 cents per kilowatt hour.
  • Heating accounts for 30% of U.S. natural gas use, and caused $1.45 billion in damages, about 11 cents per thousand cubic feet.
  • Transportation accounts for 30% of U.S. energy demand, and in 2005 produced $56 billion in nonclimate damages.
  • Damage per vehicle mile ranged from 1.2 to 1.7 cents.
  • Corn-grain ethanol caused more damage than gasoline, while ethanol made from herbaceous plants had lower damages.
  • Damages caused by electric and hybrid vehicles was higher than those created by conventional vehicles in 2005 and will continue to be so in 2030. While the vehicles create few emissions, the electricity to power them relies heavily on fossil fuels. In addition, the energy used in creating the batteries and electric motor increase life-cycle damages by 20%.

Image by Stephen Codrington. Tags: coal, congestion, Congress, emissions, fossil fuels, global warming, greenhouse gases, pollutio.

Last updated: November 30, 2009


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Citation: Committee on Health, Environmental, and Other External Costs and Benefits of Energy Production and Consumption, Jared L. Cohon (Chair), "Hidden Costs of Energy: Unpriced Consequences of Energy Production and Use", National Resource Council, 2010, (paperback).