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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.

———————–

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.

14 comments

1 Ed Reid { 03.07.11 at 7:54 am }

“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 non fossil fuel power generation is idealistic driven and far too high.”

I would argue (semantically, perhaps) that adding externalities SWAGS to the price of electricity in the US does nothing to increase the competitiveness of non-fossil electricity, but merely decreases the competitiveness of fossil electricity; and, not coincidentally, of the US economy.

The quote above talks about an increase in the price of US electricity, not specifically coal-sourced electricity. If that is correct as written, then it would translate to an increase of ~ $0.36 – 0.54 per kWh for coal-sourced power.

That would almost be enough to make Cape Wind competitive!

Question: Which current US products would still be competitive in global markets in the US electricity price were artificially increased to this extent. Enquiring minds want to know.

Question: Would the US be willing to consider selling West Virginia to India and Montana and Wyoming to China? Just asking?

2 cknappenberger { 03.07.11 at 8:55 am }

Ed,

Epstein et al.’s analysis is on coal-fired electricity, which I tried to make clear throughout my article. I guess I could have been more specific in the sentence that you quote that their price increase also applies to coal-fired electricity not the overall price of all electricity.

Sorry for the confusion.

-Chip

3 Jon Boone { 03.07.11 at 8:58 am }

Another fine Chip Knappenberger piece. The Center for Health and Global Environment study is the latest statistically sanctimonious work by people and organizations racked by confirmation bias. One doesn’t have to read such a report–indeed, the urge is to resist reading it–since the conclusions are foreordained and the evidence cherry-picked to support the premise. The ignorance manifest is palpable. Attempting to replace coal with wind, for example, would only mean more coal.

These are the same kind of “experts” advising government about how to reign in Wall Street, people invested in scientism and a phony application of incomplete knowledge and fungible statistics seeking to profit from fudge.

4 JavalinaTex { 03.07.11 at 1:07 pm }

Positive externalities of coal use? Lower oil and natural gas prices… We used coal and nuke to replace residual fuel oil and natural gas in baseload power generation… this allowed us to use natural gas to replace fuel oil in many markets for heating, it allowed us to crack the residual oil into higher value added gasoline and light distillates.

I just noticed a few items in the study that stood out… one, they seem to blame SIDS on coal burning as it is postiviely correlated to particulate pollution… (I presume I would find a diabetes correlation when I read the full paper)… they blamed people not being able to sleep in appalachia due to distant explosions used in mining operations… hmmm…. I can point to people who are complaining about the whoop whoop whoop of wind turbines…

How about the postive health and longevity externalities of less poverty…. of having electricity… and plentiful and inexpensive…

5 Charles { 03.07.11 at 4:28 pm }

IT would not matter how expensive coal fired electricity became, it would still not make wind competitive. Wind suffers from one inevitable flaw which it cannot change and that is it is an intermittent supply of electricity, into a demand market that is continuous.

Wind will never happen as an industrial source of energy and has already ‘peaked’ as a symbol of environmental adornment that outlines rather starkly the intellectual failings of the Green Movement

6 nofreewind { 03.07.11 at 8:57 pm }

Air Quality? The EPA’s site shows very little air pollution in the US.
SO2 average of 252 sites looks to be about .0025 ppm or 1/12 the National Standard which they set to “protect health”. If you click on the maps and go to Pennsylvania, where i live, you won’t find much pollution. Yet, here Pa. is a population dense state with a high % of coal power plants and we are also downwind of OH, IL and IN – other heavy coal burners.
http://www.epa.gov/airtrends/

7 Creative accounting of “social cost” « JunkScience Sidebar { 03.08.11 at 1:38 am }

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

8 Flyover Joe { 03.09.11 at 5:39 pm }

It has been estimated that 16% of current food production has been made possible by the atmospheric CO2 enrichment that fossil-fuel use has provided. I don’t know how to quantify that, but it’s certainly a positive externality of some magnitude.

9 Ran Kohn { 05.09.11 at 3:33 pm }

(I edited the above)
I read your piece with much interest. It strikes me as odd to think that mountain top removal (for Coal) or hydraulic fracking (NG) could produce positive externalities. Agreed that it is hard to put a precise dollar value on the cost of this and that activity, however, the same was said about tobacco usage.
The life expectancy of people smoking is significantly lower from those not smoking. Similarly it is true that people who work in mines live shorter lives. Clearly the proximity to the externalities of tobacco and coal mining causes life threatening hazards. In other words the use of coal does raise legitimate health concerns and not just close to the mine anymore than the effect of smoking are limited only to the smoker. Just how many hospital beds would we have dedicated to cancer and emphysema without tobacco or coal? Health issues emanating from coal drive research dollars that could be put to use elsewhere. The supply chain of rail to the mines could similarly be put to use elsewhere. If we are talking economics the issue comes down to resource scarcity.
How to put a value on all that?
I would submit that it makes more sense to project forward and see what the consequences of continuing with coal and fossil fuels in general leads to. If we permit market forces to determine how much mining of coal, gas and oil goes on then we may indeed someday soon be faced with some very unappetizing prospects. In the case of coal the new most market efficient methodology for extracting it is Mountain top removal. It even comes with a positive externality—it does not require people to mine underground. It dispenses with miners altogether. Unfortunately once the mountain top is removed it leaves behind a bald spot that is not only unsightly but cannot be rehabilitated for any other use—although no doubt nature given several centuries will eventually find some use for it. I will choose not to put a value on “natural beauty” because although it can be done I don’t want to spend the time arguing over it (what is the value of a national park?). But one can easily put a value on land that can no longer be used for anything.
If indeed we simply continue and we are not alone—China, India and soon Africa too—in seeking raw materials for energy we can reasonably expect more “accidents” and in time larger rather than smaller. It than will become much more costly to undo the damage regardless of climate change. Although we cannot ignore climate change because the rest of the world is not and it could easily going forward put a carbon tax on such resources. Of course I am leaving out our biggest cost—defending our rights to raw materials—let’s be honest what do we need our military for if not to protect our overseas energy sources.
So yes in fact we can argue about the cost of externalities but whatever the cost we can be sure it will go up over time. So the question is why continue on that route. We are subsidizing coal already by not taking the externalities and pushing them onto the producers. Nuclear power is subsidized by 140%–that’s right they pay for nothing. Why anyone should complain about the few measly dollars we throw into the wind doesn’t compute for me.

10 rt123 { 05.14.11 at 6:25 pm }

You guys are deluded. You want to toy with assumptions to get the results YOU want, and accuse others (who use reasonable assumptions) of doing what YOU do. Get real. These universities don’t get money with the express purpose of achieving an objective, like CONSERVATIVE think tanks and institutions do. Cato, Heritage and all the others are feeding you BS and you don’t even know it. Wake up.

11 Sophia Turner { 11.02.11 at 8:39 am }

Coal is bad!!!!!!!!!!! In here u thinc coal iz good itz not!!!!!!!

12 Endemel Brogdeveld { 09.26.12 at 10:36 pm }

IER is a Houston, Texas-based free-market think tank. They have received over $200,000 in funding from oil giant ExxonMobil and have strong links to other well-known, industry-friendly organizations. Bradley is also listed as an “Adjunct Scholar” for the DC-based free-market think tank the Cato Institute, which describes itself as an organization seeking to, “broaden the parameters of public policy debate to allow consideration of the traditional American principles of limited government, individual liberty, free markets and peace.” The Cato Institute has received funding in the past from ExxonMobil, as well as well known energy industry-money backed charitable foundations like the Charles G. Koch Foundation. Finally, Bradley is listed as an “Expert” for another free-market think tank, the Competitive Enterprise Institute (CEI). CEI describes itself as a “public policy organization dedicated to advancing the principles of free enterprise and limited government.” The organzation is well-known for its aggressive efforts to counter the scientific evidence for human-induced climate change, including an infamous set of television ads with the tag line “C02, We Call it Life.” Since 1998, CEI has received over $2 million in funding from ExxonMobil, although in 2007, ExxonMobil announced they would no longer be funding CEI.

13 rbradley { 09.27.12 at 8:19 am }

Mr. Brogdeveld:

I do not mind publishing your facts despite its insinuation that I am ‘bought and paid for,’ a PR hack. Now, I might be a hack at some or many things, but public policy and energy is not one of them. I have done my homework and can intellectually defend myself pretty well.

I am pro-free markets and against crony capitalism–and I stood up to Enron as an employee on this very thing (see here: http://www.politicalcapitalism.org/enron/). I welcome my association with CATO and other libertarian groups. Regarding financial support for IER, we accept contributions from individuals, foundations, and corporations–but not from government so folks like you do not end up supporting us through the back door if you do not want to.

This said, I would invite you to revisit the issues and financially support the cause of affordable, reliable energy if, in your mind, this makes me a good guy. I really am pretty decent and public spirited!

- Rob Bradley

14 Clayton Handleman { 07.12.13 at 10:14 am }

“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”

Nickle / kwhr inconsequential? What? Better check your facts, wind can easily compete at $0.09 / kwhr which is what the cost of coal power would be if you added another nickle / kwhr. And the widely accepted number for wind intermittency to become problematic, in such a way as to decrease its value, is 20% penetration. So maybe you want to back that off to 10% out of skepticism, that still leaves a lot of headroom for adding wind if we accept your number for externalities.

It is also worth pointing out that since this article was written solar prices have collapsed. In areas where it is peak coincident, adding a nickle / kwhr to conventional power sources and giving solar the same planning horizons that are used to justify capital expenses of conventional power plants and we start to see a very competitive landscape.

Further, I think it is fair to say that you are as biased by your point of view as Epstein is by his, so subjectively, policy makes probably should split the difference.

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