Studies of the Environmental Costs of

Electricity

September 1994

OTA-BP-ETI-134

NTIS order #PB95-109641

GPO stock #052-003-01393-2
Recommended Citation: U.S. Congress, Office of Technology Assessment, Studies of

the 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 studies

that assign monetary value to the environmental effects of energy

technologies. Quantitative analysis of environmental effects has

been an important feature of energy policy for several decades, and

growing numbers of studies attempt to integrate these analyses into an

overall framework that allows comparison of the environmental effects

of 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. These

assumptions have been the focus of contentious debate in the analytical

and policy communities. While changing a study’s assumptions can profoundly affect its results, there is currently no agreement on the most appropriate set of assumptions. This does not imply that all assumptions

are equally valid, but indicates that assumptions often reflect deeply held

values of participants in policy debates.

This report was prepared in response to a request by the House Committee on Science, Space, and Technology. The report examines a set of

environmental cost studies, compares and contrasts their methods and

assumptions, and discusses how they could be made more useful to federal policy makers. In contrast to other studies in this area, OTA’S report

explores the close ties between values, assumptions, and quantitative results and the implications of these ties for policymaking.

OTA appreciates the participation of many individuals without whose

help this report would not have been possible. OTA received generous

assistance from workshop participants and reviewers who offered valuable information and comments. The contents of the report itself, however, are the sole responsibility of OTA.

Director

. . .

Ill
Preject Staff

Peter Blair

Assistant Director

OTA Industry, Commerce, and

International Security Division

Emilia L. Govan

Program Director

OTA Energy, Transportation, and

Infrastructure Program

Samuel F. Baldwin

Project Director

OTA Renewable Energy Project

David Jensen

Project Director

ADMINISTRATIVE STAFF

Lillian Chapman

Division Administrator

Marsha Fenn

Office Administrator

Gay Jackson

PC Specialist

Tina Aikens

Administrative Secretary

Iv
Alan Basala

U.S. Environmental Protection

Agency

Thomas Bath

National Renewable Energy

Laboratory

David Boomsma

U.S. Department of Energy

Shepard Buchanan

Bonneville Power Administration

Dallas Burtraw

Resources for the Future

Paul Carrier

U.S. Department of Energy

Emily Caverhill

Resource Insight, Inc.

Mark Cooper

Consumer Energy Council

of America

David Dawson

Forest Policy Consultant

Jonathan Koomey

Lawrence Berkeley Laboratory

John Hughes

Electric Consumers Resource

Council

Bruce Humphrey

Edison Electric Institute

James Kennedy

U.S. General Accounting Office

John Kennedy

Allied Signal Inc.

Jan McFarland

U.S. Environmental Protection

Agency

Rick Morgan

U.S. Environmental Protection

Agency

Victor Niemeyer

Electric Power Research Institute

Richard Norgaard

University of California—

Berkeley

Dale W. Osborn

Kenetech

Robert D. Rowe

RCG/Hagler, Bailly, Inc.

Reviewers

Mark Sagoff

University of Maryland

Robert L. San Martin

U.S. Department of Energy

Kari Smith

Natural Resources Defense

Council

Eric Von Magnus

Maine Public Utilities

Commission

Kris Wernstedt

Resources for the Future

Irvin L. (Jack) White

Battelle Pacific Northwest

Laboratories

OTA REVIEWERS

Mark Boroush

Robert Friedman

Gregory Eyring

Gretchen Kolsrud

Todd LaPorte

Karen Larsen

Dalton Paxman

Steve Plotkin

Robin Roy

Joanne Seder

Matthew Weinberg

Robert W. Fri

Resources for the Future

v
workshop Participants

Irvin L. (Jack) White

(Chairman)

Battelle Pacific Northwest

Laboratories

Steve Bernow

Tellus Institute

Ashley Brown

RCG/Hagler, Bailly, Inc.

Dallas Burtraw

Resources for the Future

Robert Costanza

University of Maryland

Bruce Humphrey

Edison Electric Institute

Alan Krupnick

Resources for the Future

Daniel Lashof

Natural Resources Defense

Council

Richard Norgaard

University of California –

Berkeley

Richard Ottinger

Pace University

Mark Sagoff

University of Maryland

vi
1

2

3

4

5

Summary 1

Studies of Environmental Costs 3

Methods for Valuing Environmental Costs 3

Assumptions in Environmental Cost Studies 5

Roles for Environmental Cost Studies in

Policymaking 6

Studies of Environmental Costs 9

The Purpose and Structure of Environmental Cost

Studies 10

Selected Studies 13

Comparing Studies 31

Methods for Valuing Environmental Costs 37

Market Valuation 38

Hedonic Valuation 38

Contingent Valuation 39

Control Cost Valuation 42

Mitigation Cost Valuation 42

Conclusion 43

Assumptions in Environmental Cost

Studies 45

Issues and Underlying Assumptions 47

Frameworks 62

Roles for Environmental Cost Studies in

Policymaking 67

Current Laws and Regulations 67

Making Studies More Useful in Federal

Policymaking 70

INDEX 75

vii

contents

I

L I

I

L J
Summary

I

n the past two decades, studies of energy technologies increasingly have focused on quantifying environmental effects. In particular, many studies have attempted to estimate

the environmental cost of different electricity generating

technologies —the monetary value of the environmental effects—so that environmental concerns can be incorporated more

easily into public and private decisionmaking.

These environmental cost studies have attracted the attention

of a variety of legislators and regulators. Although few measures

have been enacted with the intent of directly passing environmental costs onto consumers, several state and federal actions require

that these costs be estimated and considered by utilities. For example, 29 states require utilities to consider environmental costs

in some way when they choose among electricity supply options,

and many other states are considering such measures. Several federal statutes also mandate that utilities or agencies estimate environmental costs.

Credible and accurate information about environmental costs

could be a critical component of future state and federal policies.

Several new studies will be released within the next year (see

chapter 2 for details), and these new studies, as well as previously

completed studies, could help federal policy makers make choices

about the use of current electricity technologies and the level of

support warranted for new or improved technologies. They also

could allow quantification of the potential benefits associated

with electricity technologies that have fewer environmental impacts (e.g., solar and wind energy) and technologies that reduce

energy use (e.g., energy-efficient appliances). This is particularly

important given that many of these alternative technologies currently 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 environmental costs of electricity production. Specifically, it:

■

m

●

●

explains the principles behind estimates of environmental costs and the terms used to discuss such

estimates,

summarizes and compares existing estimates of environmental costs and the methods of arriving at

those estimates,

characterizes and analyzes the reasons for differences in estimates, particularly the assumptions and

values 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 requested

this report, asked OTA to examine the fundamental assumptions and values that underlie debates over

environmental costs and to explore their implications for policymaking.

The study focuses on environmental cost estimates for electricity generation because this area has

produced 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 concerned with energy (e.g., transportation).l

OTA did not attempt to make its own estimates of the environmental costs of electricity. The study’s

request explicitly excluded such estimates, and OTA finds that generally accepted estimates would be

difficult, if not impossible, to achieve at this time.

In addition, this study does not discuss specific policy instruments. The use of specific policy instruments is largely separate from the estimation of environmental costs. Another OTA study is currently

reviewing 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 making

has examined several studies of the environmental

costs of electricity (see box l-l). This report reviews the studies’ results, methods, and assumptions in an effort to determine whether there are

generally accepted approaches to estimating environmental costs and whether the studies have converged upon similar conclusions. The report does

not provide a detailed discussion of how the findings of these studies might be incorporated into

policy. Where policy relevance is discussed, it is

primarily from a federal perspective.

OTA concludes that no clear consensus exists

on quantitative estimates of environmental costs

those estimates. The methods of these studies, and

the estimates themselves, vary widely. The differing methods and results have produced a contentious technical debate among analysts and

policymakers who wish to use the results of environmental cost studies. Many of these differences

can be addressed through further research and

analysis. Some critical disagreements over methodology, however, mask deeper disputes over values, basic policy goals, and the intended role of

environmental cost studies. It is unlikely that

these disputes can be resolved by technical analysis or scientific research. Instead, these disagree-
Chapter 1 Summary I 3

ments are more likely to be successfully addressed

through public debates in the policy arena.

This report summarizes several existing and

ongoing studies, discusses several major methodological disputes and the assumptions underlying

them, and attempts to characterize the different

frameworks of assumptions. Understanding these

frameworks can help policymakers understand

both current and future studies, avoid unintentionally accepting the embedded assumptions of studies, and make the best use of the information the

studies provide.

STUDIES OF ENVIRONMENTAL COSTS

Environmental cost studies usually compare the

effects of several different energy sources (e.g.,

coal, oil, nuclear, and solar). The studies catalog

the emissions from power plants (e.g., sulfur dioxide (S02

) and carbon dioxide (C02) and then estimate the costs associated with those emissions.

Cost estimates can be made by either: 1) evaluating the health and environmental impacts from

those emissions and estimating the monetary cost

of those impacts or 2) examining the cost of currently mandated measures to control those emissions or to mitigate their effects. To estimate an

energy source’s total environmental cost, each

study adds together the damages from all environmental effects attributed to a particular source.

OTA examined eight environmental cost studies for this report (see table 1-1 ). The studies were

selected based on their comprehensiveness, their

influence, and the extent of their methodological

discussion. Two of the studies (one sponsored by

the U.S. Department of Energy and one sponsored

by New York State) are in progress and are expected to be completed by the end of 1994. The six

other studies had been completed by 1991. There

are several other recent and ongoing studies in

addition to those that OTA examined in detail for

this request. All of these studies are discussed in

chapter 2.

On the basis of a review of the methodology

and estimates of these eight studies, OTA found

that:

m

m

●

Cost estimates are difficult to combine or

compare. Studies use very different methods of

estimating, categorizing, and reporting results.

These methods are so different that in-depth

comparison of quantitative results is extremely

difficult. In general, only broad comparisons

are possible.

Cost estimates are variable and uncertain. Estimates made by different studies vary greatly.

For example, cost estimates for the same energy source can vary between nearly zero and a

value greater than current electricity prices. All

studies note that their results contain substantial uncertainty. Not all studies include explicit

estimates of this uncertainty, but when uncertainty ranges are given, they are often as large

or larger than the estimates themselves. At least

one category of costs, those associated with

global warming, is potentially large, but the

costs are impossible to estimate with certainty.

A single category of effects often dominates the

cost estimates. The studies examined by OTA

made more than 50 separate estimates of the environmental costs associated with particular

energy sources. In more than 80 percent of

these estimates, a single category of damages

accounted for the majority of the cost estimate.

In one study, for example, damages associated

with S02 accounted for more than 60 percent of

the total damages associated with one type of

coal-fired power plant. This observation may

facilitate the use of these studies for policymaking because dominant effects may point to

areas where additional legislative or regulatory

attention is warranted.

METHODS FOR VALUING

ENVIRONMENTAL COSTS

Valuation is the process of taking an environmental impact (e.g., number of deaths or acres of damaged forest) and estimating a monetary value for

that impact. Other phases of environmental cost

studies besides valuation (e.g., estimating longterm health and ecological effects) are important

and are often the focus of debate, but studies

involving these other phases have been part of
4 I Studies of the Environmental Costs of Electricity

Authors Sponsors Title Date

Resources for the Future; Oak

Ridge National Laboratories

U.S. Department of Energy;

Commission of the European

Communities

External Costs and

Benefits of Fuel

Cycles

(forthcoming)

RCG/Hagler, Bailly, Inc. New York State Energy Research and (forthcoming)

Development Authority;

Empire State Electric Energy

Research Corp.;

Electric Power Research Institute

New York State

Environmental

Externalities Cost

Study

Richard Ottinger et al. (Pace

University Center for

Environmental Legal Studies)

New York State Energy Research and

Development Authority;

U.S. Department of Energy

Environmental Costs

of Electricity

1990

Stephen Bernow et al. (Tellus 1990

Institute)

Valuation of

Environmental

Externalities for

Energy Planning and

Operations

Several state energy agencies and

utility regulatory bodies (Vermont,

Massachusetts, California, and

Rhode Island)

Paul Chernick and Emily

Caverhill (PLC, Inc.)

Boston Gas Co.; filed with the

Massachusetts Department of Public

Utilities

The Valuation of

Externalities from

Energy Production,

Delivery, and Use

1989

Social Costs of

Energy Consumption

Olav Hohmeyer

(Fraunhofer-lnstitute for

Systems and Innovation

Research, Germany)

Commission of the European

Communities

1988

ECO Northwest; Biosystems

Analysis; Nero and Associates

Bonneville Power Administration;

U.S. Department of Energy

(Several, see chapter

2 for details)

1983-1987

Michael Shuman and Ralph 1982

Cavanagh (Natural Resources

Defense Council)

Northwest Conservation Act

Coalition

A Model Electric

Power and

Conservation Plan for

the 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 government

trast, valuation is relatively new to the policy are- regulators. Mitigation cost valuution examines

na 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 found

rent environmental cost studies. Market valuation in chapter 3.

uses existing market prices to estimate damages. Disputes over valuation methods mostly center

Contingent valuation elicits estimates from con- around the utility and accuracy of different types

sumers 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 intect implicit valuation of environmental factors by formation from consumer choices, whereas other

consumers. Control cost valuation examines ex- methods draw information from the decisions of

isting regulatory decisions to detect implicit valu- elected and appointed government officials (e.g.,
control cost valuation). Analysts and others disagree strongly about the proper method of estimating environmental costs and about whether

such valuation is even useful.

ASSUMPTIONS IN ENVIRONMENTAL

COST STUDIES

To make quantitative estimates of environmental

costs, studies must make a large number of assumptions. Some of these assumptions involve

valuation methods, others involve how to handle

uncertainty or whether currently regulated effects

should be included in cost estimates. Different assumptions can include or exclude whole classes of

effects, and can lead to dramatically different numerical estimates for the effects that are included.

Environmental cost studies are not the only

type of study in which assumptions affect results;

all quantitative analyses are conducted within a

general framework of assumptions and values.

Environmental cost studies, however, include a

particularly large number of assumptions. Attempting to estimate environmental costs necessarily uses the results of many other, more limited,

component studies—for example, studies of

emissions generation, transport, and deposition;

environmental impacts; risk assessment; and economic valuation. Environmental cost studies incorporate the strengths and weaknesses of these

component studies. As a result, environmental

cost studies face an array of vexing problems that

have emerged from the past two decades of research in environmental science, social science,

engineering, and economics. They generally require a larger number of assumptions, contain

greater uncertainties in their results, and engender

more controversy than do studies of a more limited scope.

There are no obvious criteria to use in selecting

a set of best assumptions for all purposes or for all

policy makers. Specific assumptions draw criticism and support from different analysts, but most

are not obviously flawed. Instead, these assumptions embody different goals and values that may

be more or less appropriate to different purposes

and policy makers. Because no single set of assumptions matches

parties, consensus

Chapter 1

the goals and

estimates of

costs are not possible.

The impact of the assumptions

Summary I 5

values of most

environmental

and values implicit in different estimates is large enough that

isolated quantitative estimates of environmental

costs are nearly meaningless. Such estimates become meaningful only in the context of a study’s

assumptions and of the environmental effects that

are included. This conclusion indicates that isolated quantitative estimates of environmental cost

studies should not be presented as the final results

of a study. This practice improperly focuses attention only on the numerical results, rather than on

explaining those results in the context of the

study’s assumptions.

Investigating the assumptions that underlie

these different estimates can help explain why the

estimates differ and can also help to clarify broader debates over the environmental costs of energy.

On the basis of the methodology of environmental

cost studies, position papers by stakeholders, and

a workshop convened for this study, OTA identified several frameworks of goals and values (see

chapter 4 for details). These frameworks can be

characterized by the answers to fundamental questions such as:

●

●

●

What is the goal of environmental policy? Environmental cost studies are most frequently associated with the goal of economic efficiency.

Other implicit and explicit goals assumed in

environmental cost debates include equity, sustainability, and protection of health and safety.

What is the role of environmental cost studies

in energy policy? These studies can be used to

quantify economic corrections to energy markets, facilitate compensation for environmental

damages, or guide government regulation to

protect health or encourage sustainability.

How is value determined? Valuation can be

based on consumers acting in markets, legislators and regulators acting in political systems,

scientists studying ecological systems, or government officials acting in legal settings.
6 I Studies of the Environmental Costs of Electricity

Different answers to these questions lead to different assumptions about what effects to include,

how to value those effects, and how to handle uncertainty. These assumptions, in turn, can lead to

widely divergent estimates of the environmental

costs of electricity generation. All studies make

these assumptions based on frameworks of goals

and values, and these frameworks are often the focus of substantial disagreement. Rather than helping to resolve political and social debates, current

environmental cost studies often reflect different

positions in these debates.

ROLES FOR ENVIRONMENTAL COST

STUDIES IN POLICYMAKING

Given that assumptions and values are so important to the methods and results of environmental

cost studies, what role can such studies serve in

developing federal policy?

 | Current Laws and Regulations

Several federal laws and regulations already require some examination of environmental cost.

For example, consideration of environmental cost

is required under the Pacific Northwest Electric

Power Planning and Conservation Act of 1980

(Public Law 96-501). The Clean Air Act Amendments of 1990 (Public Law 101-549) require the

Environmental Protection Agency (EPA) Administrator to conduct a comprehensive analysis of

the effects of the act on the public health, economy, and environment of the United States. The

Energy Policy Act of 1992 (Public Law 102-486)

requires the Secretary of Energy to develop a

least-cost national energy strategy that considers

the economic, energy, environmental, and social

costs of various energy technologies.

Some pending federal legislation has a connection to environmental cost issues. For example,

much of the debate over whether to elevate the

EPA to cabinet-level status has concerned whether

the new agency would be required to perform

cost-benefit analyses of proposed regulations.

Some EPA regulations directly address the environmental effects of energy, and environmental

cost studies hold the promise of helping to quantify regulatory benefits. EPA conceivably could

conduct or use many different types of studies of

costs and benefits. Some of these studies lack the

complexity of studies that assess the environmental cost of energy, but the difficulties, challenges,

and opportunities presented by environmental

cost studies may provide useful analogs for broader questions about the quantitative study of EPA

regulations.

In addition to federal policies, many state regulatory commissions require some quantitative or

qualitative use of environmental cost estimates.

Nineteen states require utilities to consider quantitative estimates of environmental costs. Requirements in another 10 states and the District of

Columbia mandate the use of qualitative criteria

that attempt to account for environmental costs.

| Making Studies More Useful to Federal

Policymakers

For federal policymakers, use of environmental

cost studies offers both pitfalls and opportunities.

Pitfalls include the unknowing acceptance of assumptions and values embedded within the studies’ quantitative analysis. Opportunities include

using environmental cost studies as a way to explore the importance of specific assumptions and

as a way to gain useful insights into setting environmental priorities.

Moving Beyond Evaluation

In one way, at least, federal policymakers may

find a mismatch between their own goals and

those embodied in currently available studies of

the environmental costs of electricity. Many of the

assumptions in currently available studies stem

from an emphasis on the goals of state utility commissions. In particular, these studies often assume

that the important decisions involve choosing

among available electricity generating technologies, rather than attempting to alter the relevant

environmental effects of those technologies. Federal policy often involves the latter, through laws

and regulations concerning pollution control

technologies, mining and transportation safety,

waste disposal, and impact mitigation.
Chapter 1 Summary I 7

One consequence of the existing focus on

choosing among different generating technologies is that studies often report aggregate values

that indicate total environmental costs. Such results are useful to state regulatory commissions

that wish to affect how utilities add new generating capacity. However, they are of limited use to

federal legislators and regulators, who have a wider array of pol icy measures available. If studies are

not relevant to the design and management of

electricity generating technologies, then federal

policy makers may not be able to use the studies effectively or they may choose to ignore them entirely.

In contrast, if environmental cost studies present disaggregated results, then they could prove

more useful to federal policy makers. They could

assist legislators and regulators with setting priorities and designing efficient and effective regulatory programs. For example, if future studies

analyze and report the relative importance of different effects as prominently as current studies report total environmental costs, then future studies

could help support priority-setting activities in

both regulatory programs and research and development activities.

Emphasizing Nonquantitative Results

Environmental cost studies often focus on what

appears to be the “bottom line’' —the monetary

value of env ironmental effects. In many cases, this

is the most speculative and controversial aspect of

the study, and effects that are not monetized are

often ignored. In contrast, focusing on the earlier

components of the study (e.g., the emissions and

impacts stages) would emphasize aspects that are

most amenable to scientific and technical resolution.

Monetization is useful, but its very nature allows the results of environmental cost studies to

be reported in a highly aggregated form. This encourages use of the results without the full understanding of the assumptions and values that

underlie them. Placing greater emphasis on reporting the results of earlier phases of the analysis

(e.g., emissions and impacts assessments), and on

clearly explaining the assumptions and values that

underlie the estimates of monetary damages,

would greatly assist the federal decisionmakers

who may use the studies.

Informing Legislative Decisionmaking

At least for the near term, use of environmental

cost studies on the federal level is likely to engender continued disputes over methodology and results. As is the case with current studies, much of

the controversy over future studies will likely be

due to fundamental differences in assumptions

and the associated frameworks of goals and values, rather than specific findings of a given study.

For policymakers, accepting and using the quantitative findings of a particular study of environmental costs implies accepting the goals and

values embedded in that study.

Some analysts believe recent studies (e.g.,

DOE/EC and New York State) are converging on

a common set of methods and their results should

be preferred over those of other studies. In several

ways, these recent studies do represent advances

over older studies because they review a larger

body of literature, they are often more systematic

in their survey of emissions and environmental

impacts, and several elements of their technical

methodology are more sophisticated.

However, this methodological sophistication

may be less important than the studies’ basic assumptions, many of which depend on policy goals

and values that are beyond the purview of analysts. These recent studies do make a relatively

consistent set of assumptions. For example, these

studies value environmental effects using only

damage cost approaches (see chapter 3) and they

employ relatively high standards of proof about

what emissions and impacts should be included in

environmental cost estimates. However, whether

these assumptions represent objectively “better”

choices depends on the goals and values of policymakers who use these studies, rather than on the

opinions of analysts.

Technical and methodological critiques of environmental cost studies are important, but they

are not the only important critiques. A study may
8 I Studies of the Environmental Costs of Electricity

be technically excellent and still not meet the of the policy makers’ public responsibilities. In

needs of Congress and of executive branch agen- contrast, if a study’s values and assumptions are

cies. If a study’s values and assumptions differ made clear and match those of the relevant deradically from those of the relevant policy makers, cisionmakers, then the study may be able to prothen they may reject the study on those grounds vide valuable insights of a sort that other analyses

alone. Such an action would not be “ignoring sci- cannot.

ence” but would constitute the legitimate exercise
Studies of

Environmental

Costs 2

M

uch of the technical debate over the environmental costs

of electricity concerns a set of quantitative studies.

These studies were conducted mostly within the past

two decades, and they attempt to evaluate the environmental costs associated with different electricity generating

technologies. The studies serve as focal points for discussion.

Their methodology, assumptions, results, and recommendations

are being examined and challenged by various stakeholders.

In many cases, the methods and assumptions of these studies

reflect the underlying values of the analysts who conduct the studies and the groups that sponsor them. These values often lie at the

heart of disagreements over estimates of environmental costs.

Understanding the technical methodology and assumptions of

environmental cost studies can help to clarify the values that are at

issue.

This chapter covers three areas. First, it discusses the general

structure and purpose of environmental cost studies. Second, it

summarizes the history and quantitative conclusions of a selected

group of studies. Third, it compares and contrasts the selected

studies in an effort to identify similarities and differences.

This chapter does not provide a detailed explanation of the

methodological issues surrounding environmental cost studies or

a detailed analysis of which methods are more or less appropriate.

This report focuses on different issues—the values and assumptions that underlie estimates of environmental costs and the implications for using these studies in policymaking. These topics

are discussed at greater length in chapters 3 and 4.

|9
10 I Studies of the Environmental Costs of Electricity

THE PURPOSE AND STRUCTURE OF

ENVIRONMENTAL COST STUDIES

Environmental cost studies are a relatively recent

phenomenon. l The earliest studies that compared

several energy sources date from the 1970s, but

nearly all studies of current interest date from the

1980s and 1990s.

Many other studies exist that analyze other

types of costs (see box 2-1), but particular attention has focused on the environmental costs of

electricity. One reason is that such studies have a

built-in audience of government officials who regulate the environmental effects of electricity generation at both the state and federal levels. State

and federal agencies have funded several studies,

and many states have set policies based on the

studies’ results. Another reason is that, to conduct

an environmental cost study, a large body of scientific research on environmental effects must exist

or must be created. Such an extensive base of research may not exist in other areas.

Environmental cost studies are structured to facilitate comparison of energy sources by using

monetary values to summarize the environmental

effects of each source. A study examines a range

of environmental effects (e.g., health impacts of

from mining operations) of several energy sources

(e.g., coal, nuclear, and solar), and applies the

same general methods to each source. The cost of

each effect is quantified using a monetary value

and then, for each source, the monetary values are

added together to estimate the total cost of the environmental effects associated with that energy

source.

Environmental cost studies generally make estimates for several electricity generating technologies, including coal, nuclear, natural gas, oil,

hydroelectric, solar, and wind.2 In addition, several forms of each technology are often evaluated.

For example, fossil fuel plants may use different

technologies for pollution control, and there are

several approaches to generating electricity from

solar energy. Because each of these technologies

can produce different environmental effects, studies often treat them separately.

Environmental cost studies trace environmental effects through at least three related stages (see

figure 2-1):3,4

● Identifying emissions—the environmental releases of byproducts of generation and use of

electricity. 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 more

in-depth treatment, see Temple, Barker & Sloane, Inc. and Electric Power Research Institute, Environmental Externalities: An Overview of

Theory andl%wfice, CU/EN-7294 (Palo Alto, CA: May 1991). For a technical introduction to economic theory and practice of environmental

cost studies, see G.M. Brown, Jr. and J.M. Callaway, U.S. National Acid Precipitation Assessment Program, “Report 27: Methods for Valuing

Acidic Deposition and Air Pollution Effects,” Acidic Deposition: State of Science and Technology, Volume IV: Control Technologies, Future

Emissions, and Eflects Valuarion (Washington, IX: U.S. Government Printing Off]ce, September 1990). For an extensive bibliography, see

Consumer Energy Council of America, Incorporating Environmental Externalities Into Utility Planning: Seeking a Cost-Effective Means of

Assuring 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 Environmental

Legal 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 of

externality 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 cycle

phase (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 other

types 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 of

federal loan guarantees, energy assistance programs, research and development, energy services,

and funding of some administrative agencies. Energy consumers do not pay directly for these subsidies, instead, all U.S. taxpayers bear the costs of these programs. Although nearly all taxpayers use the

energy sources affected by federal subsidies (and vice versa), users do not pay for those subsidies in

proportion to the amount of energy they use, Other nonenvironmental costs include induced public expenditures (e.g., defense costs) and economic effects (e.g., production, employment, and trade balance).

Several other studies examine benefits as well as costs.2 For example, energy generation facilities

can increase employment. Whether an effect is a cost or a benefit can depend on factors other than the

effect itself. For example, additional jobs created by an electricity generating facility could be an economic benefit to an area with high unemployment. Alternatively, that same job creation could be a cost

to an area with labor shortages.3

Finally, some studies focus on topics other than electricity. For example, a number of studies examine various costs of transportation that may not be completely included in prices (e.g., subsidized

parking and roads, vulnerability to oil supply disruptions, congestion, and accidents).4 Some of these

effects are energy-related (e. g., vulnerability to oil supply disruptions), but most of the effects examined

by 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/onsin

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 to

the 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 Eneqyinthe 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 m

Transportahon,” June 3, 1992; James J. MacKenzie et al., The Going Rate What/? Real& Costs To Drive (Washington, DC: World

Resources 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, The

Price 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 of

ticulates. 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 imcal or socioeconomic effects of emissions on pacts to a single scale (e.g., dollars), evaluating

human health (e.g., cancer and emphysema), damages becomes a necessary step in the analyproperty (e.g., loss of commercial fishing or sis.

erosion of stonework by acid rain), and ecological systems (e.g., decreases in biodiversity).

See table 2-1 for additional examples.
12 I Studies of the Environmental Costs of Electricity

Emissions Impacts Damages

o

I Oil

Coal

Human

Emissions health

SO2: Xx,xx

CO2: 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 studies

have not taken.

SOURCE Office of Technology Assessment, 1994
Chapter2 Studies of Environmental Costs 113

Emissions

Air emissions: SOX, NOX1, COX, particulate,

trace elements, air toxics

Waste generation: Toxic, radioactive, solid, liquid

Radiation

Electromagnetic fields (EMF)

Thermal

Noise

Pesticide use around power lines

Runoff from mining, processing, and fuel storage

Impacts

Human deaths and illness: accidents, cancer,

respiratory illness, acute poisoning

Reduced production of crops, timber, or fisheries

Degradation of structures from atmospheric pollutants

Lost recreational opportunities

Degraded visibility

Loss of habitat and biodiversity

Use of land, water, and minerals

NOTE The lists are not comprehensive Not all impacts are tied to

emissions or pathways.

SOURCE Office of Technology Assessment, 1994

Environmental cost studies use emissions to

estimate impacts. Emissions travel through pathways to create an environmental impact. For example, some studies estimate trace emissions of

S 02 through the pathway of acid rain to the

eventual environmental impacts on forest ecosystems (see figure 2-l). In addition to emission-related impacts, studies make estimates of impacts

that arise independent of emissions. For example,

some accidental deaths and injuries result from

coal mining.

Next, environmental cost studies use impacts

to estimate monetary damages. Impacts are converted to damages through a process of valuation.

For example, the monetary damages associated

with a lost forest ecosystem can be valued by surveying nearby residents who use the forest for recreation (see figure 2-l). It is not always possible

to attach monetary damages to impacts. Some impacts are left out of damage estimates either because estimating damages is too difficult or

because the damages are assumed to be negligible.

Although these three stages are common to

many studies, they are far from universal. First,

some analysts advocate adding another stage to

environmental cost studies-evaluating whether

damages represent an economic externality (see

box 2-2). They argue that merely assessing damages provides only part of the information that is

important for policymaking. Second, some environmental cost studies do not derive damages

based on impacts, but instead make damage estimates based on existing legislative, regulatory,

and judicial decisions. These valuation methods,

referred to as control cost methods, are covered in

more detail in chapter 3.

SELECTED STUDIES

OTA selected eight environmental cost studies to

examine for this report (see tables 2-2 and 2-3).

There are several other recent and ongoing studies

in addition to those that OTA examined in detail

(see box 2-3). The eight selected studies demonstrate both the promise and problems of environmental cost studies. The studies were selected

based on the following criteria:

Comprehensiveness: Each study covers a range

of energy sources and environmental effects.

lnfluence: Each study continues to influence

current thinking of analysts and decisionmakers.

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 lnhuber Report, ERG 79-3 (Berkeley, CA: University of California, Energy and Resources Group, June 1979).
14 I Studies of the Environmental Costs of Electricity

Economists have devised a formal theory of environmental costs, They define some environmental

effects as externalities-costs imposed on society that are not included in the prices of the goods or

services. These costs are external, or outside, the existing system of energy pricing, By adding externalities 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 effects

are well documented and have resulted in environmental statutes, such as the Clean Air Act, Because

there are serious consequences for violating the statutes, utilities have installed pollution control equipment 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 analysts believe that wages in some industries (e.g., mining and construction) compensate workers for the

relatively higher risks they may bear. Wages of workers in these industries are included in the market

prices of energy, Other examples include settlements mandated by court verdicts in cases of environmental 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 an

air pollutant that is currently unregulated. If the pollutant has an environmental cost of $5 per ton, one

way 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 equipment costs more than the emissions it prevents, Some residual emissions would remain because they

are too costly to prevent. At this point, it is cheaper for the utility to pay the tax than to control the remaining emissions.

Some critics of applying environmental costs argue that current regulations completely internalize

the environmental costs for many pollutants. If regulations implicitly or explicitly balance social costs

and benefits, then emissions have been reduced to an “optimal” level and the costs of that reduction

are 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 externality may be created (if standards are set too high).

However, other analysts point out that, even if existing regulations balance costs and benefits, the

remaining emissions still may represent an externality. Consider two different methods of reducing emissions of a pollutant to the same level. One method is an emission tax, set at a level equal to the marginal damages caused by the pollutant. ’ Under this method, a utility will: 1) reduce emissions up to the

point where the cost of control is equal to the cost of the tax, and 2) pay the tax on the remaining emissions. The utility either eliminates emissions or pays for the damages those emissions cause, An alternative method of regulating a pollutant is a mandated cap on emissions, set so marginal costs and

benefits are equal. Under this method, a utility will reduce its emissions to the mandated level, In contrast to the first method, the utility will not incur any costs for its remaining emissions. Under this method, the utility eliminates some of its emissions, but does not pay for the damages caused by the remaining 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 damages 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,
Chapter2 Studies of Environmental Costs 115

Some environmental effects of energy remain largely unregulated. If the environmental damages

from such pollutants exist, they represent clear examples of externalities. For example, the C02 emissions of electric utilities are thought to contribute to global warming, but these emissions are not regulated on the federal level, Several state public utility commissions (PUCs) have recognized the potential

of future damages associated with C02 emissions as an externality, and they require that utilities consider C02 emissions during new capacity planning. To the extent that global warming is a serious environmental threat, unregulated C02 emissions represent an externality-a cost of energy use not included in the market price.

SOURCE Office of Technology Assessment, 1994.

• Methodological discussion: Each study presents a substantive discussion of the methods

used to create its estimates.6

Despite these similarities, the studies also differ in many respects:

Analysts and sponsors: Groups that conducted

studies include academic groups, consulting

firms, research organizations, environmental

groups, and government laboratories (e.g., respectively, Pace University Center for Environmental Legal Studies, RCG/Hagler Bailly

Inc., Resources for the Future, Natural Resources Defense Council, and Oak Ridge National Laboratory). Sponsors include utilities,

state governments, citizens’ groups, and federal agencies (e.g., respectively, Boston Gas Co.,

New York State, Northwest Conservation Act

Coalition, and the U.S. Department of Energy).

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 the

intervening years, there have been new developments in valuation methodology, available

data, and understanding of pollutant emissions,

transport, and health effects.

Size and complexity: Some studies are relatively short and simple (e.g., Shuman and Cavanagh’s estimates are presented in less than 60

pages). Others are quite long and complex

(e.g., Pace’s analysis runs more than 700

pages).

Energy sources: Some studies deal only with

fossil fuels (e.g., coal, oil and natural gas). Other studies estimate costs for a range of other

sources (e.g., nuclear, solar, wind, biomass) as

well as energy -efficiency measures.

Methods: Methods vary widely among studies

(this topic is dealt within greater detail in chapters 3 and 4).

Environmental: effects: The studies do not all

cover the same environmental effects. Some

studies deal almost exclusively with air emis6For ~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 of

the European Communities

(EC)

(forthcoming) Resources for the Future

Oak Ridge National Laboratories

U.S. Department of Energy;

Commission of the European

Communities

Unfinished. Resources:

$3 million and 36 months.

New York State (forthcoming) RCG/Hagler, Bailly, Inc. New York State Energy Research

and Development Authority;

Empire State Electric Energy

Research Corp.

Electric Power Research Institute

Unfinished. Resources: $1.75

million and 36 months. Will

rely partially on DOflEC

results.

Pace

Tellus Insitutute

1990

1990/1991

Richard Ottinger, et al.

Pace University Center for

Environmental Legal Studies

New York State Energy Research

and Development Authority;

U.S. Department of Energy o

Limited to air emissions of

fossil fuels. Specific to

California and Northeastern

Us.

Stephen Bernow et al.

Tellus Institute

Several state energy agencies

and utility regulatory bodies

(Vermont, Massachusetts,

California, and Rhode Island)

Paul Chernick and Emily Caverhill

PLC, inc.

Boston Gas Co.; filed with the

Massachusetts Department of

Public Utilities

Chernick and Caverhill 1989

1988 Specific to the former Federal

Republic of Germany.

Hohmeyer Olav Hohmeyer

Fraunhofer-lnstitute for Systems

and Innovation Research,

Federal Republic of Germany

Commission of the European

Communities

Bonneville Power

Administration (BPA)

Shuman and Cavanagh

1983-1987

1982

ECO Northwest

Biosystems Analysis

Nero and Associates

Bonneville Power Administration;

U.S. Department of Energy

Seven studies, each on a

different source (e.g., coal,

nuclear).

Michael Shuman and Ralph Specific to Northwest U.S.

Cavanagh, Natural Resources

Defense Council

Northwest Conservation Act

Coalition

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’S

selection 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) Pac e Tellus Caverhill Hohmeyer BPA Cavanagh

Sources

monetized

coal

oil

natural gas

nuclear

solar (PV)

wind

hydroelectric

biomass

conservation

coal (4)

oil (3)

natural gas (3)

nuclear (2)

biomass

MSW

hydroelectric (2)

wind

solar (2)

coal (4) coal (4)

oil (4) oil (7)

natural gas (3) natural gas

nuclear (3)

solar

wind

biomass

efficiency

coal (4) fossil fuels

oil (4) nuclear

natural gas (4) solar (PV)

wind

coal (2) coal

oil nuclear

natural gas wind

nuclear solar (hot water)

biomass efficiency

MSW

geothermal

solar

(central)

wind

hydroelectric

demand-side — —

management

Sources

discussed,

but not

monetized

Emissions

with

monetized

impacts

— waste-to-energy — — —

hydroelectric

geothermal

SO2

NOX

N20

c o2

co

particulate

volatile

organics

(not

applicable)

(not available) so so2 air pollutants (varies) air pollutants 2

NOX

particulate

nitrates

lead

mercury

ozone

acid aerosols

air toxics

water pollution

radiation

solid waste

human health

property

Sox

NOX

c o2

particulate

radiation

nuclear

accidents

noise

NOX c o2 c o2

c o2

nuclear

CH4 accidents

marine oil spills indust.

accidents

noise

radiation

nuclear

accidents

indust. accidents

transp. accidents M

o

human health human health

property property

human health

property

damage

global warming

crop damage

land use

visibility

(varies) human health

property

damage

global warming

proliferation

Monetized

impacts

(not available)

damage damage

global warming global warming

ecosystem ecosystem

damage damage

crop damage land use

livestock

timber

visibility

damage

crop damage

fisheries damage

land use

visibility

—
DOE-EC New York stats Chernick and Shurnan and

(unfinished) (unfinished Pac e Tellus Caverhill Hohmeyar BPA Cavanagh

Effects (not available) energy security

quantified

but not

monetized

Effects noted (not available) C02

but not

quantified

Stages or emphasis on mining

activities generation fuel processing

monetized transportation

generation

Valuation (damage cost) (damage cost)

methods

acid rain; water

use and pollution;

thermal pollution;

land use; solid

waste; methane;

ecosystem

effects;

non-routine

nuclear

emissions;

damage to

historical

monuments;

livestock;

forestry;

electro-magnetic

fields

generation

decommissioning

market

contingent

hedonic

mitigation cost

—

water

pollution,

noise, traffic

generation

(air

emissions)

control cost

mitigation

cost

particulate;

air toxics; carbon

monoxide; ozone;

electro-magnetic

fields; herbicide

use on

transmission

rights-of-way;

land use; waste

disposal; water

pollution; thermal

pollution; N20;

indoor air

pollution

generation

market

control cost

mitigation cost

—

species loss;

routine nuclear

emissions;

damage to

historical

monuments;

production of

intermediate

goods used in

energy

generation;

impacts of stages

of fuel cycle

besides

generation

generation

market

hedonic

mitigation cost

(varies) —

(varies) water

consumption;

recreation losses;

fish and wildlife

mortality;

aesthetic

damage;

transmission and

distribution

(varies) extraction

transportation

generation

(varies) market

hedonic

control 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 study

produced 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 include

market, contingent, and hedonic valuation. Human health includes both public and occupational impacts. Some studies estimate nonenvironmental costs such as subsidies and macroeconomic effects; these are not included in this chart. The source listed as “efficiency” denotes several different approaches; Pace evaluated demand-side management; Shuman and Cavanaugh evaluated household weatherization. Valuation methods are discussed in greater detail in chapter 3.

SOURCE: Office of Technology Assessment, 1994.
Chapter2 Studies of Environmental Costs 119

The following studies were identified in the course of OTA’S analysis but are not extensively reviewed

in the body of this report Each is briefly discussed below and its Implications for the report are explored

Studies

Nevada: 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 environmental 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 they

are highly speculative. All estimates are given in terms of dollars per pound of pollutant. The study does

not derive overall environmental costs associated with particular power or plant types. In this way, the

Nevada 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 The

project was commissioned by the Victorian Department of Energy and Minerals and also sponsored by

the Commonwealth Department of Environment, Sport and Territories, the State Electricity Commission

of Victoria, the Gas and Fuel Corp. of Victoria, and the Renewable Energy Authority Victoria. Environmental 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 socioeconomic benefits. The estimates are specific to the Latrobe Valley, a particular geographic region in Victoria, Although the report focuses on estimates in terms of dollars per pound of pollutant, the costs of one

specific power plant are provided.

Wisconsin/Minnesota: These two studies have been prepared by RTI and NERA for U.S. utilities in

Wisconsin and Minnesota. In both cases, the studies have not been made public by their sponsors, due

to their use in pending rate cases before state regulatory commissions. They will be released by the

end of 1994.

California Energy Commission: For several years, the California Energy Commission (CEC) has

sought to quantify environmental costs of constructing new generating facilities. These analyses have

been part of the Energy Report process, a formal process that includes adopting environmental cost

estimates to be used for energy planning. The 1992 Energy Report process used values based on estimates 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, report

prepared 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 December 1993)

2 RcG/Hag@ Ba(lly, Inc and SRCAustrallaPty Ltd., Extema/ityPo/icy/3eve/opn?errtProject” Energy Sectoc cOfrSUftantS’sU~Mary 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)
20 I Studies of the Environmental Costs of Electricity

Implications

The 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 sufficient information was not available, In the case of the Nevada, Australia, and CEC studies, they provide

only limited results. The Nevada studies provide cost estimates for air emissions only, and do not provide comparative figures for different types of power plants. The Australia study provides estimates for a

more comprehensive set of effects, but only applies those figures to evaluating the overall costs of a

single type of plant (a coal-fired power plant). The CEC study provides estimates only for air emissions

and 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 environmental

cost 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, Accepting

the results of a particular study involves the implicit or explicit acceptance of a large set of assumptions

about 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 generally far lower than many previous studies. The two Nevada studies make cost estimates associated

with different air emissions that are between 30 percent and less than 1 percent of similar cost estimates of the Tellus and Pace studies. Similarlyl the Australia study estimates the environmental cost of

an 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, results

of 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 emissions

such as oil spills and impacts such as nuclear

war.

7

Categorization of effects: Several of the studies

categorize environmental effects by emissions,

presenting results for S02, C02, NOX, and other

emissions and then adding them to obtain overall estimates of environmental costs (e.g., Pace,

Tellus, and Chernick and Caverhill). Other

studies categorize effects by type of impact

such as flora, fauna, human, and climate impacts (e.g., Hohmeyer).

Technology specificity: Some studies group a

number of different technologies into a single

category. For example, Hohmeyer’s study produces only a single estimate of environmental

costs for all fossil fuels. In contrast, other studies (e.g., Pace, Chernick and Caverhill) differentiate estimates based on generation tech7oneSwdy (shurn~ ~dcav~agh) includestie risk of nuclear war in its high-end estimates of environmental CONS associated wi~ nuclear power. They contend that use of nuclear power increases the proliferation of nuclear weapons, and proliferation increases the risk of nuclear war. Michael Shuman and Ralph Cavanagh, A Model Conservation and Electric Power flanfor the Pacijic Northwest, Appendix 2: Environmental Cosfs (Seattle, WA: Northwest Conservation Act Coalition, November 1982).
Chapter2 Studies of Environmental Costs 121

nology (e.g., oil combustion turbine) and by the

sulfur content of fuels.

Location specificity: Some studies are specific

to a particular region of the country, whereas

others are intended to be more general. Highly

specific studies calculate impacts based on assumptions about population densities, particularly sensitive or resistant ecosystems, or

transport or deposition of pollutants. Several

studies have chosen specific sites to evaluate,

in order to be able to make specific assumptions

about the exposed population and the surrounding ecological conditions.8

~

9

Despite these differences, it is tempting to look

for common conclusions, or to average numerical

results, in an effort to obtain conclusions with

greater validity than those of a single study. However, the differences among the studies make it

difficult to compare their results in a meaningful

way. Taken together, these studies point more toward the diversity of approaches to evaluating

environmental costs than toward common conclusions.

Each study is discussed briefly below. Each

completed study is accompanied by a table presenting its quantitative results. The results are presented first in a way that is as close to the original

study as possible—the cost figures have not been

rounded or recalculated. 10 In addition to the original figures, a set of adjusted figures in 1990 dollars is given for each study to facilitate

inflation-adjusted comparisons.

Additional discussion of methodological issues is presented in chapters 3 and 4. The studies

reviewed below are used to illustrate that discussion.

| Department of Energy/Commission of

the European Communities

The DOE/EC study is a major ongoing study initiated in February 1991 by the U.S. Department of

Energy (DOE) and the Commission of the European Communities (EC). The two organizations

agreed to support a study to develop a comparative

analytical methodology and the best range of estimates of external costs for eight fuel cycles and

four conservation options.

11 The eight fuel cycles

are coal, oil, natural gas, uranium, biomass, hydroelectric, photovoltaic, and wind. The study is

expected to conclude in late 1994.

Responsibilities for the analytical work have

been split between U.S. and European research

teams. The teams share lead responsibilities for

the nuclear study. The U.S. leads the coal, oil, natural gas, biomass, and hydroelectric studies. The

EC leads the conservation, photovoltaic, and wind

studies. DOE’s portion of the study was contracted 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 detailed modifications made to the initial DOE/EC

agreement. 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’ironmental

Costs 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 nonprofit 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.
22 I Studies of the Environmental Costs of Electricity

publicly available document on the DOE/EC

study. However, in January 1993, DOE circulated

a draft report for peer review. In August 1993, peer

review was complete and the report was returned

to ORNL and RFF for modifications. The coalspecific report is expected to be issued in September 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 many

details of its methodology are available. The study

is using damage cost approaches (see chapter

3)-one of the first times damage costing has been

used exclusively in a major study of the environmental costs of electricity. Its component reports

plan to cover a broad range of fuel cycles and

stages of energy production (e.g., mining, transportation, use, and waste disposal). Each fuel

cycle report will focus on one or two actual plants,

in an effort to produce specific and defensible results.

| New York State

The New York State study is a major ongoing

study that began in December 1991. It was undertaken in response to an order from New York Public Service Commission, and its goal is to develop

a methodology and computer model that will permit estimation of environmental costs. The model

will apply to new electricity generating plants, relicensed plants, and electricity demand management 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 Development Authority, the New York State electric utilities through the Empire State Electric Energy

Research Corp. (ESEERCO), and the Electric

Power Research Institute (EPRI).16 The latter

three organizations are funding the $1.75-million

project.

The project is managed by a five-member

board of representatives from the four organizations and one representative from Resources for

the Future, an independent expert selected by the

four other members. The management board directs the work of two contractors: the research

contractor (RCG/Hagler, Bailly, Inc.) and the

coordinating contractor (Industrial Economics,

Inc.).

The project will produce four separate reports:

1) a critical review of existing research that

screens a large number of possible emissions and

impacts, 2) a recommended methodology, 3) a

computer model and manual, and 4) case studies

that represent applications of the model. The first

report was completed in December 1993 and became available to the public in May 1994.17 The

other reports are expected to be finished by the end

of 1994.

The first report screens different possible environmental effects for inclusion in the final computer model. The report reviews a large number of

emissions and impacts, and it categorizes them

based on initial judgments of the size of their associated damages and their ability to be accurately

quantified. Later reports will concentrate on the

emissions and impacts judged to be both large and

amenable to quantification.

Among the studies reviewed by OTA, the New

York State study is unique because of its intended

output. The study will produce a software-based

model that runs on personal computers. The software will permit users to modify the values of

model parameters (e.g., levels of emissions and

costs per unit of emission) and will produce estimates based on those values. All other studies

reviewed 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 Recommendations,” ESEERCO Project EP91-50, December 1993.
Chapter2 Studies of Environmental Costs 123

report with environmental cost estimates based on

a single, or at least limited, set of parameter

values. 18

I Pace

The Pace study is one of the best known and most

frequently cited studies of environmental costs.

The study was prepared for the New York State

Energy Research and Development Authority and

the U.S. Department of Energy, and it was published in 1990.19 The study is wide-ranging, covering different energy sources (e.g., coal, oil,

natural gas, nuclear, renewable, waste-to-energy

systems, demand-side management) and environmental effects (e.g., air and water pollution, global

warming, acid rain, land use). The report also includes a brief discussion of policy tools on both

the state and federal levels.

Quantitative results of the study are summarized in table 2-4. The study concludes that environmental costs associated with coal, oil, and nuclear are highest, costs associated with natural gas

are somewhat lower, and costs associated with renewable sources (solar, wind, and biomass) and

demand-side management are substantially lower.

The Pace study explicitly notes several classes

of environmental costs excluded from the analysis, generally due to uncertainty or lack of data.

For fossil fuels, it excludes greenhouse gases such

as methane and N20; air toxics; water use, land

use, and solid waste disposal; and environmental

costs associated with fuel extraction, transportation, and processing. For nuclear power, it excludes 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. These

estimates are then combined to produce illustrative estimates. However, the authors note that

some of the studies they reviewed were inadequately documented and substantively deficient.

The authors caution that the quantitative results of

the study should not be cited as definitive estimates, but rather indicate the order-of-magnitude

of results and should be a useful starting point for

further research.

| Tellus

The Tellus study represents work published in

1990 and 1991 by Stephen Bernow, Donald Marron, and Bruce Biewald of the Tellus Institute, an

independent, nonprofit research and consulting

organization. The Tellus work is not a single

study, but instead is comprised of several estimates produced for state regulatory commissions

and state energy agencies. A 1990 report summarizes this previous work and describes the estimates and methodology concisely. In addition, a

1991 journal article applies the results of the 1990

report to estimate overall environmental costs for

several combinations of generating technologies

and fuels.20

The study differs from other environmental

cost studies in two important respects. First, the

Tellus study only provides estimates of the costs

of air emissions. Costs of other types of emissions

(e.g., radiation), and impacts (e.g., industrial and

transportation accidents) are not estimated. Air

emissions 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.
24 I Studies of the Environmental Costs of Electricity

By emission type

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

SO2

2.03 2.13

Particulate 1.19 1.25

N ox 0.82 0.86

c 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

Oil

Boiler (0.5% S)

Boiler (1% S)

Boiler (2.2% S)

Combustion turbine (1% S)

Natural Gas

Existing steam plant

Combined cycle

BACT

Nuclear

Renewab/es

Solar

Wind

Biomass

Demand-side Management

6.8

3.3

2.8

4.5

3.2

4.5

7.9

3.0

1.2

1.1

0.8

2.91

0-0,4

0-0.1

0-0.7

0.0

7.1

3.5

2.9

4.7

3.3

4.7

8.3

3.1

1.3

1.1

0.8

3.05

0-0.4

0-0.1

0-0.7

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, and

particulate), the authors contendthal the damages “could be much higher.’” Values for acid deposition, electromagnetic fields, and land and water

use 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 of

only sources for which Tellus generates esti- its exclusive reliance on a valuation method

mates.21 A summary of the Tellus estimates is known as control costing.22 It derives all estiprovided 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.
Chapter2 Studies of Environmental Costs 125

By emission type

southern Southern

Northeast U.S. California Northeast U.S. California

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

NOX 3.50 131.00 3.7 137.29

S ox 0.75 37.50 0.79 39.30

Volatile organic gases 2,65 14.50 2.78 15.20

Particulate 2.00 24.00 2.10 25.15

c o 0.43 0.43 0.45 0.45

c o2 0.011 0.011 0.012 0.012

CH4 0.11 0.11 0.12 0.12

N20 1.98 1.98 2.08 2.08

By plant type

Plant Cost, ¢/kWh (1990)

coal

FGD

2.37°A sulfur

1.83°A sulfur

0.82% sulfur

Oil

Steam, 1 .5% sulfur

Steam, 1 .3% sulfur

Steam, 1 .0% sulfur

Steam, 0.75% sulfur

Steam, 0.70% sulfur

Steam, 0.30% sulfur

Combustion turbine

Natural Gas

Steam

Combustion turbine

Combined cycle

4.47

7.00

9.97

6.05

5.55

3.92

4.08

3.54

3.86

4.44

6.04

2.37

4.22

1.68

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 warming

impacts; 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 Northeastern

United 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 m

Electrlc 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 are

posed by existing legislation.23 It estimates the willing to impose on utility customers to control

costs of compliance with existing regulations, and emissions. Control costing is covered in more dethen 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.
26 I Studies of the Environmental Costs of Electricity

The control costing approach used in the Tellus

study results in varying estimates for the environmental costs of emissions in different areas of the

country. In several cases, estimates of the environmental costs associated with air emissions in the

Northeast are substantially lower than estimates

for the costs associated with air emissions in

Southern California. This difference results from

California’s more stringent emission standards.

California’s standards impose higher costs on utilities and their customers, thus resulting in a higher estimate of environmental costs associated with

particular emissions.

| Chernick and Caverhill

The Chernick and Caverhill study was produced

in 1989 by Paul Chernick and Emily Caverhill of

PLC, Inc.,24 a consulting firm in Boston, Massachusetts. 25 The study was sponsored by the Boston Gas Co. and filed with the Massachusetts

Department of Public Utilities. It targets issues

important to New England and the northeastern

United States, and is not intended to provide results applicable to the entire United States. It estimates environmental costs for coal, oil, and

gas-fired generators. It makes no estimates of the

environmental costs associated with other

sources, such as nuclear, hydroelectric, solar, and

wind power.

Chernick and Caverhill make estimates by

combining several sources of information. They

examine estimates from previous environmental

cost studies (e.g., for S02 and NOX

),26 from information about the costs mandated by various environmental 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 by

each method, and then choose what they feel to be

a plausible value.

The study estimates values for two general

categories of environmental effects: air emissions

(S02, NOX, C02, and CH4) and marine oil spills.

In addition, estimates are made of the environmental costs associated with the macroeconomic

effects of oil imports. The report also lists a set of

other environmental costs as identified, but not

quantified: additional air emissions (air toxics,

CO, particulate, and ozone) and a variety of noncombustion-related environmental costs (e.g.,

electromagnetic radiation, pesticide use on transmission rights-of-way, water and thermal pollution, indoor air pollution, and accidental injuries

and deaths in extraction and transportation).

Table 2-6 presents a summary of the study’s results on environmental costs. The report contends

that estimates of environmental costs are more

likely to be underestimates than overestimates.

Overall, the study estimates the environmental

costs associated with natural gas to be somewhat

lower than those associated with coal and oil.

| Hohmeyer

The Hohmeyer study was published in 1988 by

Olav Hohmeyer, then an economist and deputy

head of the Department of Technical Change at the

Fraunhofer-Institute for Systems and Innovation

Research in the Federal Republic of Germany.27

It was sponsored by the Commission of the European 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 other

studies 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).
Chapter2 Studies of Environmental Costs 127

By emission type

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

s o2 0.88 0.96

NOx 1.50 1.64

c o2 0.011 0.012

CH4 0.35 0.38

Marine 011 spills o.20/MMBTU o.22/MMBTU

By plant type

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

Coal

Existing (1 .2% S) 5.7 6.2

AFBC 3.8 4.1

IGCC 3.2 3.5

NSPS 4.9 5.3

Oil

Existing steam plant (0.5% S) 3.6 3.9

Existing steam plant (1% S) 4.3 4.7

Existing steam plant (2.2% S) 5.8 6.3

Combustion turbine (0.3% S) 5.0 5.5

Natural Gas

Existing steam plant 1.9 2.1

Combined cycle 1.9 2.1

NSPS 1.6 1.7

BACT 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 than

overstated “ (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 reflects

the 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 combushon

emlsslons (aw toxlcs, CO, partlculates, and ozone) and for some noncombustlon related effects (e g., electromagnetic radlatlon, solid waste generahon, 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 Update, ” A Report to the Boston Gas Co , Dec. 22, 1989.

The study is specific to the Federal Republic of The study explicitly compares renewable enerGermany. However, it is worth considering be- gy resources, such as solar and wind, with convencause it is widely cited and generated substantial tional energy sources, such as coal and nuclear. It

interest in the United States when it was released. focuses on costs in the following categories: enviIts methodology is explained fairly carefully in ronmental effects, subsidies, depletion of nonrethe text of the study, and Hohmeyer maintains the newable resources, and public expenditures

general approach is valid for any market-based (R&D support, induced expenditures, and subsieconomy. dies).
.

28 I Studies of the Environmental Costs of Electricity

Envirwwnental effects by plant type

Plant Cost, DM/kWh (1982) Cost, ¢/kWh (1990)

Fossil fuels 0.0114-0.0609 0.78-4.153

Nuclear 0.0120-0.1200 0.82-8.18

Solar 0.0044 0.30

Wind 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 breeder reactors.

Values presented here are for environmental costs only, Estimates of public expenditures and resource depletion costs that are included m the

study 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 studies

that value specific categories of effects (e.g., human health effects of air pollution). Other estimates involve direct calculations based on damages (e.g., estimating the probability of, and

health effects from, a nuclear accident and multiplying by the monetary value of a life). Finally, a

few estimates involve the costs of mitigating environmental damages (e.g., the costs of avoiding the

effects of sea level rise brought on by global

warming).

The study explicitly notes several classes of environmental costs are not quantified. These include “psycho-social” costs of deaths and illness,

health care costs, species loss, environmental effects of intermediate goods used to produce and

operate energy systems, some costs of climatic

changes, environmental costs of routine operation

of nuclear plants, and aesthetic and land-use effects of renewable energy. The author contends

that data gaps and uncertainties (which prevented

some effects from being quantified or monetized)

placed renewable energy sources at a disadvantage.

Table 2-7 summarizes the quantitative results

of Hohmeyer’s study. Overall, the study estimates

that the environmental costs of coal and nuclear

power are substantially larger than those of solar

and wind power. The report notes that the quantitative results should be interpreted as a first

approximation that can be useful for policy. Further, the report claims that where uncertainty existed, the assumptions were least favorable to the

report’s eventual conclusion (that the environmental costs of renewable sources are considerably lower than those of conventional sources).

I Bonneville Power Administration

The Bonneville Power Administration (BPA)

study was undertaken to comply with the provisions of the Pacific Northwest Electric Power

Planning and Conservation Act, passed in 1980.

The act requires the Bonneville Power Administration and the Northwest Power Planning Council to pursue a planning process that gives priority

to cost-effective energy options when planning

new energy generation capacity. The act requires

that evaluations of cost-effectiveness include

quantifiable environmental costs that are directly

attributable to energy conservation measures or

new 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).
Chapter2 Studies of Environmental Costs 129

By plant type

Plant

Coal

Oil

Combustion turbine

Natural Gas

Combustion turbine

Nuclear

Hydroelectric

Biomass

Municipal Solid Waste

Geothermal

Solar

Wind

0.064-0.956

0.03

0.087

0.000837-0.0126

0.769-1.074

-0.011-0.49

-3,18-41.664

0-0.0188

0

0

0.072-1.081

0.04

0.108

0.001142-0.0172

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 quantitaThe studies covered 10 different energy sources: tive results of the study are given in table 2-8.
30 I Studies of the Environmental Costs of Electricity

Although the studies are similar in the broad

outlines of their methodology, they vary substantially in a number of factors, including the emissions considered and the specific valuation

approaches used. As a result, the cost estimates associated with the energy sources cannot be

compared with each other in the same way as estimates made by other studies.

| Shuman and Cavanagh

The Shuman and Cavanagh study was prepared in

1982 by Michael Shuman and Ralph Cavanagh of

the Natural Resources Defense Council. It was

prepared as part of a larger report-a comprehensive proposal for future power development in the

Pacific Northwest-sponsored by the Northwest

Conservation Act Coalition, an umbrella organization for 38 environmental, labor, ratepayer, and

citizens’ groups in the Pacific Northwest.30 The

environmental cost estimates are contained in appendix 2 of the larger report.31

The study examines some of the most significant environmental impacts of five different energy options: coal, nuclear, wind, solar water

heating, and household weatherization. It estimates costs for occupational and public exposure

to emissions; property and crop damage from

emissions; occupational and nonoccupational accidents in extraction, transportation, and generation (including catastrophic nuclear accidents);

and nuclear proliferation. The study does not address a variety of potential environmental costs

such as water consumption, recreation losses, fish

and wildlife mortality, aesthetic damage, and impacts from transmission and distribution facilities.

A summary of the study’s quantitative findings

is shown in table 2-9. Overall, the study estimates

that the environmental costs of solar, wind, and

weatherization are less than one-tenth of those associated with coal and nuclear. The authors believe their analysis to be conservative-the

assumptions made in the study are least favorable

to the eventual conclusions of the study (that coal

and nuclear have high environmental costs relative to solar, wind, and conservation).

The study’s explicit aim is to compare renewable sources of energy, such as solar and wind,

with conventional sources such as coal and nuclear. The study’s estimates of solar and wind were

done largely in a relative way. For example, the

health impacts of solar and wind were estimated

by using the estimate for nuclear (excluding accidents, radon emissions, and proliferation). This

decision reflected the authors’ belief that the primary environmental costs of solar and wind were

due to the construction of a large energy-producing facility and that those risks were similar for

nuclear, solar, and wind. The study assumes that

few environmental impacts are reflected in the

economic costs of energy use, and that most environmental costs should be treated as economic externalities.

In their analysis, Shuman and Cavanagh felt it

was best to preserve uncertainties in the range of

estimates offered, rather than in what classes of

environmental costs were included. As a result,

they quantify environmental costs some other

studies typically leave out. For example, estimates of coal environmental costs include the

health effects and property damage resulting from

climate change. These effects account for more

than half of the total costs at the high end of the

range that Shuman and Cavanagh give for coal

power. Similarly, estimates of nuclear environmental costs include the health effects and property damage resulting from nuclear accidents, radon

release, and weapons proliferation. These effects

account for more than 99 percent of the high end

of the range given for environmental costs associated 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 Cavmag h, op. Cit., foomote 7.
Chapter2 Studies of Environmental Costs 131

By plant type

~Plant Midpoint range Full range Midpoint range Full range

Coal 2-3 0.03-20.68 3-5 0.05-35.31

Nuclear 2-3 0.05-30.24 3-5 0.09-51.64

Solar and Wind 0-0.12 — 0-0.20 —

o — o —

COMPARING STUDIES

The final results of environmental cost studies

cannot be validated, in the sense of being able to

compare them with some objective reality. Other

types of studies can, at least in principle, be

compared with measurements of actual phenomena. For example, energy demand forecasts can be

compared with actual demand experienced at a

later date; models that estimate environmental

transport of pollutants can be compared with measured concentrations of those pollutants. In contrast, environmental cost studies produce final

results that cannot be compared with anything except results of other studies.

The difficulty with validating environmental

cost studies places special importance on the ability to compare the results of several studies. This

section discusses several conclusions based on a

comparison of the studies reviewed in this chapter.

| Estimates are Not Independent

None of the studies summarized above contain

only original research. All of the studies assemble

smaller studies of individual components such as

the health impacts of particulate, the value attached to a human life, and the willingness to pay

for pollution-free wilderness .32 In addition, some

analysts adapt calculations used in other studies to

suit their own purposes. Studies nonetheless require substantial work on the part of their authors:

they must develop an overall structure for the

study; they must locate, critique, and select original studies; and they must combine those studies

in a rigorous and defensible way.

This prevailing approach of assembling smaller pieces means that each study does not represent

an independent estimate of environmental costs.

The estimates, assumptions, and methods of one

study are often used in subsequent studies, albeit

in modified form. The body of literature on environmental costs thus represents an evolving set of

related estimates rather than a set of completely

independent ones.33

In addition, environmental cost studies are not

always estimating the same thing. Each study has

its own definition of what constitutes an environmental cost and its own assumptions about how

the cost should be estimated. As a result, any two

studies may actually be estimating quantities

whose definitions only partially overlap.

These features of environmental cost studies

have important implications for how the studies’

quantitative estimates are used. When viewing a

set 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 environmental 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.
32 I Studies of the Environmental Costs of Electricity

Studies using as a major categorization

Method Examples method

Energy source Coal, oil, nuclear, photovoltaics Pace, Tellus, Chernick and Caverhill;

Hohmeyer, BPA, Shuman and Cavanagh

Activity Mining, transportation, fuel processing, BPA (coal), Shuman and Cavanagh

generation, 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), Shuman

fauna 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,

SOURCE: Office of Technology Assessment, 1994.

simply to average the values, assuming that each

value is an independent estimate of the same quantity. These conditions do not hold for the environmental cost estimates discussed in this chapter,

and the estimates should not be averaged. Instead,

individual studies need to be examined and their

estimates compared.

| Studies Categorize Costs Differently

Unfortunately, interstudy comparisons are often

problematic. Environmental cost studies employ

a wide variety of methods for categorizing environmental costs (see table 2-10). Each method

provides a different view of environmental costs.

A single activity, such as the emission of carbon

dioxide from a coal plant, can be categorized by

many different characteristics, including the medium of the emission (air), the phase of the fuel

cycle (generation), and the energy source (coal).

The differing categorization schemes employed by different studies make comparisons difficult. Nearly all studies categorize results by

energy source (e.g., coal, nuclear, and hydroelectric). However, the components that make up

these overall estimates are important to examine,

and this is made substantially more difficult when

the components are reported using different categorization schemes.

For example, the Pace study reports environmental costs associated with particular emissions

(e.g., CO2, SO2, NOx particulate) and then combines these with quantity estimates to estimate the

environmental costs associated with each fossil

fuel energy source (e.g., coal, oil, natural gas). In

contrast, the BPA generic coal study categorizes

effects by impact (e.g., human health, crops, livestock, timber, materials, ecosystems, and visibility).

If studies use a common framework, comparisons are easier. Analysts and readers could

compare several studies side by side to understand

their similarities and differences. In addition, a

consistent framework allows researchers to alter

an existing study to incorporate new data or

assumptions. However, no categorization of environmental costs fits perfectly for all environmental effects and all technologies.34

Differences in categorization are understandable, given the diverse conditions and purposes

under which the studies were assembled. How34Stirl~g, op. cit., foomote 4.
Chapter2 Studies of Environmental Costs 133

ever, the differences force policy makers to view

existing studies as independent units of analysis,

rather than flexible tools whose assumptions and

numeric values can be interchanged to fit the

policy makers’ particular circumstances or interests. In contrast, the results of at least one pending

study (New York State) will be embodied in computer software, which will allow many parameters

of the study to be changed easily, although its basic structure will remain fixed.

| One Effect Category Often Dominates

Although studies categorize environmental effects quite differently, a single category dominates

most estimates of environmental cost. Specifically, in the eight studies reviewed by OTA, 55 quantitative estimates were produced that were broken

down into several categories of effects. Of these,

46 (84 percent) had single categories that accounted for the majority (i.e., 50 percent or more)

of the total estimate.35

For example, Pace makes estimates for 15 different generating technology and fuel combinations. Within each estimate, the study categorizes

effects by emission (e.g., S02, NOX, particulate,

and C02

). Pace produced an estimate of 4.72

cents/kWh for the environmental cost associated

with coal plants meeting the new source performance standards (NSPS). In the case of this estimate, the effects associated with S02 accounted

for 2.95 cents/kWh, or more than 60 percent of the

total estimate.

There is some consistency in the effects that

dominate. Three studies (Pace, Tellus, and Chernick and Caverhill) estimate costs for fossil fuels

and categorize effects by emission. When a single

category dominates in an estimate from these

studies, the category is either S02 or C02

. Similar

conclusions are difficult to draw for nuclear and

renewable energy sources because the studies are

often less specific about how they categorize effects for these energy sources.

This dominance of single effects has important

implications for policy makers. It points to the potential for environmental cost studies to be used

for setting priorities. Although studies with different frameworks of assumptions may differ in their

quantitative estimates of environmental costs, if

there is agreement on dominant effects then the

studies may provide valuable guidance for where

legislative and regulatory efforts should be focused. Important questions of priorities would

still remain, of course, including how to balance

environmental programs against other important

federal priorities, but focusing environmental efforts effectively is still an important victory.

| Cost Estimates are Highly Variable

In some cases it is possible to compare results of

different environmental cost studies .36

,

37 Despite

these differences in categorization, rough comparison of results is still possible (see figures 2-2 and

2-3). Comparing these results indicates wide variation in cost estimates. Some estimates of environmental costs are nearly zero. In other cases,

estimates are as high as 10 cents/kWh-costs that

are larger than the electricity rates that average

consumers 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 wide

range 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 based

solely 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 Chemick

and 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.
34 I Studies of the Environmental Costs of Electricity

Coal

Pace : ; ~ :

Tellus :

-

Chernick & Caverhill : ~ :

Hohmeyer : ~ :

BPA :

Shuman&Cavanagh : :

oil

Pace : : ~

Tellus : ~ :

Chernick & Caverhill :

~ ;

Hohmeyer ~ - ;

BPA ❑

Natural Gas .

Pace : :

Tellus : ~ ;

Chernick & Caverhill ~ - :

Hohmeyer : ~ ~

BPA ❑

Nuclear

Pace : ; ;

Hohmeyer :

BPA 

Shuman & Cavanagh : : ~

o 5 10

Estimated environmental cost (¢ per kWh)

❑ Point estimate

 Several point estimates

 Estimated range

NOTES: See text for full description of the difficulty of comparing environmental cost estimates, When several point estimates are gwen, each estimate 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
Chapter2 Studies of Environmental Costs 135

Pace

Coal

Oil

Natural Gas

Nuclear

Tellus

Coal

oil

Natural Gas

Chernick & Caverhill

Coal

Oil

Natural Gas

Hohmeyer

Fossil

Nuclear

BPA

Coal

Oil

Natural Gas

Nuclear

Shuman & Cavanagh ,

Coal : : ~

Nuclear : : ~

I

, 1

0 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 estimate 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 per

kilowatt-hour Not all results are shown for each study
36 I Studies of the Environmental Costs of Electricity

quantitative estimates demonstrates there is no

consensus about cost estimates among currently

published environmental cost studies.

I Cost Estimates are Highly Uncertain

Due to a variety of analytical difficulties and unknowns, all of the studies are cautious in their presentation of numerical estimates. First, some

studies present broad ranges of possible values

rather than specific numeric estimates (often

called “point estimates”). For example, Hohmey -

er, BPA, and Shuman and Cavanagh all use this

method. Shuman and Cavanagh even go so far as

to produce a “midpoint range” indicating values

they think are most likely, and a “full range” for

coal and nuclear indicating values they think are

possible. Where ranges are presented, they are

often quite large. The Hohmeyer high and low estimates vary by a factor of about five in the case

of fossil fuels and 10 in the case of nuclear. Shuman and Cavanagh’s full range high and low estimates differ by more than a factor of 500.

Second, some studies produce a point estimate

and then attempt to evaluate the uncertainty associated with that estimate. Where uncertainty is

evaluated, it is often quite large. For example, several of the BPA studies evaluate the uncertainty to

be as large or larger than the estimate itself, indicating that the actual cost could be nearly zero or

as much as twice the point estimate.38

Finally, most studies are careful to label their

results “preliminary.” This is due to various data

gaps, uncertainties, methodological disputes, and

the early stage of development of environmental

cost analysis. Based on uncertainty estimates and

cautions contained in the studies, and based on the

large differences in the results of different studies,

prospective users of environmental cost studies

should assume that all estimates are highly uncertain and preliminary.

| Conclusion

Many of these issues—independence, categorization, variability, and uncertainty-are closely related to the valuation phase of environmental cost

studies. This phase takes quantitative estimates of

environmental impacts and attempts to value

them in monetary terms. Other study phases also

bear on the issues discussed above, but valuation

introduces additional dimensions and complications. The different methods of valuation are discussed 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. The

standard deviation is a statistical quantity indicating the variability of an estimate. For a normal (or “bell shaped”) distribution, approximately

95 percent of the possible values lie within two standard deviations of the mean value (the center of the distribution).
Methods for

Valuing

Environmental

costs

v

aluation is a method used in environmental cost studies to

assign monetary values to the environmental effects of

electricity production. Examples include finding the value 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. Although environmental cost studies raise many other important

methodological issues in addition to valuation (e.g., human risk

assessment, extrapolation from animal studies, and estimates of

transport and deposition of environmental pollutants), these

methods have been well reviewed by other reports and are amenable to further scientific research. In contrast, disputes about valuation methods are relatively new to policy makers and appear less

amenable to resolution by additional research. Differing assumptions of analysts strongly affect the choice to use monetary valuation at all, the choice of valuation method, and the way that

method is applied. Because there is little or no consensus on these

assumptions, valuation lies at the root of much of the controversy

over the study and use of environmental costs.

At least five valuation methods are used in current environmental cost studies. ] Market valuation uses existing market

prices to estimate damages. Contingent valuation elicits estimates from consumers by the use of survey techniques. Hedonic

valuation examines existing market prices to detect implicit valuI 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 discussion, see the section in chapter 4 on quantification and monetization.

I 37
38 I Studies of the Environmental Costs of Electricity

ation of environmental factors by consumers.

Control cost valuation examines existing regulatory decisions to detect implicit valuation of environmental factors by government regulators.

Mitigation cost valuation examines the cost of repairing environmental damages to estimate the

value of preventing such damages from occurring.

Each valuation method is detailed in the following

sections. 2

MARKET VALUATION

In some cases, environmental impacts from energy production affect things that are bought and

sold, and thus have a market price. For example,

hydroelectric facilities can reduce salmon populations by hindering the upstream migration of adult

salmon to spawn and the downstream migration of

juvenile salmon toward the ocean. One method of

estimating the cost of a reduced salmon population is to multiply the reduction by the market

price of salmon.

Market valuation is used in several studies. For

example, the Pace study uses market prices to value the corrosive impact of air pollution on materials and the potential property damage from a large

nuclear accident. Similarly, the Bonneville Power

Administration (BPA) studies use market valuation in several contexts, including valuing impacts on agriculture, fur trapping, and commercial

forestry.

Market valuation has the advantage of relying

on data that are readily available and fairly uncontroversial. Care must be taken to find prices

that apply to the specific losses associated with

energy generation (e.g., prices appropriate to the

specific crops grown where emissions have their

greatest impacts), but this difficulty is fairly easy

to overcome.

Market valuation also has some subtle pitfalls.

Market costs may be distorted because, like energy prices, they may not include all relevant costs.

Many individuals would contend that forests have

higher value than the commercial value of the timber, and that the value of some animal life is higher

than the market price of their pelts. There is no

generally accepted method to account for these effects, and attempting to do so could involve an

analysis as large as the original environmental

cost study. As a result, most studies that use market valuation do not attempt to adjust market price

data to account for them.

The major limitation of market valuation is that

not all environmental impacts of energy affect

things that are bought and sold in markets. The

value of items such as visibility, preservation of

endangered species, and health impacts cannot be

estimated using market valuation.3 This limitation has led to the use of several other valuation

techniques.

HEDONIC VALUATION

Hedonic valuation examines existing market

prices for evidence of the value placed on particular environmental effects. For example, one way

to estimate the value of a recreational area is to examine the travel costs borne voluntarily by those

who visit the area. Similarly, one way to estimate

the value associated with personal safety is to

compare the wages of workers in hazardous occupations with those in occupations that are safer,

but otherwise similar.

Several studies use hedonic valuation to estimate the value of environmental impacts. For example, the BPA studies for coal, oil, and gas use

estimates that infer the value of visibility from

property values. Pace uses those estimates as well.

Similarly, the BPA hydroelectric study uses estimates based on the travel costs of hunters to value

the 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 examinations 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 encountered 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 have

the advantage of deriving from choices made by

consumers. This avoids problems that may stem

from inaccurate self-reporting--i.e., problems

caused by individuals who say they place a particular value on an environmental impact, but who

do not act consistently with that belief (seethe discussion of contingent valuation below).

Unlike market valuation, however, hedonic

methods must adjust for all factors that influence

price other than the object of study. For example,

to determine the value of visibility by using property values, analysts must account for all the other

reasons property values may vary (e.g., quality of

home, access to services, proximity to workplaces). Although statistical techniques exist to

account for these other influences, there are a great

many practical and theoretical pitfalls to avoid.

In addition, prices may not accurately reflect

how people value environmental effects. For example, wage differentials may not accurately reflect risks to workers. First, workers may be

unaware of risks they face, and they may not demand higher wages to account for increased risk.

Second, workers may be unable to bargain effectively to make their wages adequately compensate

them for their risks. Barriers to job mobility may

limit the opportunities of high-risk workers to

change positions or occupations.4

CONTINGENT VALUATION

Contingent valuation (CV) consists of surveying

individuals directly about the value they attach to

environmental damages. A typical survey provides a respondent with information about a hypothetical program that will prevent future harm to

the environment. The respondent then is asked

how much he or she would be willing to pay, individually, to bring the program into existence. The

questions can be couched in several different

forms, such as a direct question, a series of questions about hypothetical economic tradeoffs, or a

referendum—asking respondents whether they

would vote for a particular tax increase to fund the

program. In each case, the goal is to elicit an economic value that the individual attaches to the program, in as realistic a way as possible.

CV could be used to estimate willingness to

pay for almost anything, including goods that are

actively bought and sold in markets. However, the

technique’s greatest use is for estimating the value

of goods and services that are not bought and sold

in markets. Specifically, CV can be used to estimate what are called non-use values (see box 3-1 ).

CV has been actively studied for about 20

years. In the past five years there has been a dramatic increase in the number of academic studies

and presentations on the topic,5 and several comprehensive texts exist. b CV also has been employed in a variety of environmental cost studies.

For example, the BPA hydroelectric study estimates the value of old-growth forest impacts by

contingent valuation. The BPA oil and gas study

uses evidence from contingent valuation studies

to estimate the value of visibility. This estimate,

in turn, is used by Pace. Finally, both the DOE/EC

and the New York State studies expect to make use

of CV to estimate the value of several environmental impacts that cannot be valued easily in other ways.

CV has some distinct advantages over other

methods. First, it is the only method that can evaluate non-use values. As noted in box 3-1, non-use

values can bean important source of environmental cost data. Second, citizens, not experts, produce the evaluation. Proponents of CV are quick

to point out that the method has a strong undercurrent of democratic decisionmaking. Private citigjo~ 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).
40 I Studies of the Environmental Costs of Electricity

Some environmental resources are regularly used by individuals or groups. For example, wilderness

areas provide recreation for hikers and hunters—recreation that may be curtailed if the areas are

harmed. The worth of this recreation is referred to as a “use value, ” because individuals benefit from

actually using the wilderness area. Attaching monetary figures to use values can be challenging, but

involves 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 at

least three categories: 1) option value-the value of preserving a resource for potential future use. For

example, even though someone may not be considering an immediate visit to the Grand Canyon, he or

she may wish to preserve the option for a future visit; 2) bequest value-the value of preserving a resource 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 resource, even if they never expect anyone to use it.

Non-use values have engendered substantial controversy, One reason is the difficulty of assessing

them. Use values can be measured by an individual’s behavior-how far a person travels to use a recreation area, for example. By definition, non-use values involve few outward signs. Surveying individuals

about the value they place on environmental resources-called contingent valauation (CV)-generally is

recognized 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 results

Another focus of controversy is the claim that non-use values can represent moral and ethical concerns. Some economists claim that individuals’ responses to CV surveys represent more than just preferences that are commonly linked with market choices (e.g., tastes and fashion); in addition, they also

represent moral and ethical beliefs of the individual. Others, such as philosopher Mark Sagoff, argue

that such ethical and political choices are distinct from the preferences considered by economists and

cannot be treated in the same way. These writers argue that economic preferences are concerned with

personal benefit and are best resolved within markets; ethical choices are concerned with community

good 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 values

role in public decisions.

that non-use values exist, but

reliably and about their proper

SOURCES: Mark Sagoff, “Environmental Economics: An Epitaph,” Resources, No. 111, spring 1993, pp. 2-7; Raymond J. Kopp, “Environmental Economics: Not Dead But Thriving, ” Resources, No. 111, spring 1993, pp. 7-1 2; Oak Ridge National Laboratory and

Resources for the Future, U. S.-EC Fue/Cyc/e Study: &ckgroundhumenttot&@prmcharrcf/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).

—- —..
Chapter3 Methods for Valuing Environmental Costs 141

zens, not experts who may be detached from the

interests of the public, are asked to value the programs. This puts some of the decisionmaking

power in the hands of those who ultimately will

pay for the environmental control and mitigation

programs (through taxes and/or higher product

prices).

CV is far from universally accepted, however,

and several criticisms have been made. First, results vary with how the questions are asked. Relatively subtle differences in wording, in the order

questions are asked, or in the supporting evidence

given, can substantially affect the answers of respondents. Second, some results are not consistent with basic tenets of economic theory.

Economists expect that the value of a certain

quantity of goods will increase as that quantity increases. For example, if someone is willing to pay

a dollar for an apple, they should be willing to pay

substantially more than a dollar for two apples.

Respondents in CV studies have not always behaved as economists expect. In one study, the average willingness to pay to prevent 2,000

migratory birds from dying was as great as that for

preventing 20,000 or 200,000 birds from dying.7

Third, studies sometimes appear to produce unreasonable answers. Some critics have argued that

CV results should be dismissed merely because

the implied value of environmental damages,

when aggregated on a national level, are unreasonably large.8 One reason for these large values is

that respondents lack a meaningful budget

constraint and the need to consider tradeoffs. Although respondents might report they are willing

to spend $100 to prevent future oil spills, they may

fail to account for all the other environmental programs they might be asked to fund or other, nonenvironmental uses for their funds. Particularly

when such responses are hypothetical, as they are

in CV, respondents may not meaningfully consider what expense they will forego to pay for such

a contribution. One study estimating willingness

to pay for protecting the Alaskan coast from oil

spills showed that estimates varied substantially

depending on whether such values were discussed

independently ($85) or in the context of overall

government spending ($0.29 ).9

Fourth, respondents may give “strategic” answers to survey questions that are intended to influence public agencies. A respondent might

believe that, by stating a high value, he or she can

encourage state or federal agencies to undertake

the programs described in the survey. Alternatively, respondents may believe that, by stating a low

value, they will reduce or avoid a future tax increase to pay for such programs.10

Finally, respondents may not fully understand

or trust the information provided by the survey.

The responses requested on CV surveys are unlike

typical choices made by consumers. Environmental effects have impacts that go far beyond the respondent in both time and space. Evaluating

environmental effects deals with topics (e.g., ecology, biology, atmospheric science) that are unfamiliar to most respondents, and few respondents

have had the opportunity to see the effects of previous choices. Respondents also may not trust the

given information. They may react based on an

overall belief about environmental reporting (e.g.,

“those environmental problems are always exaggerated” or “the damage always ends up to be

worse then we’re initially led to believe”). In any

of these cases, respondents may not be answering

the question given, and they may not produce an

accurate assessment of their willingness to pay.

To summarize, CV studies are subject to a variety of biases that are potentially troubling,

care needs to be taken in the design, conduct

reporting 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.

and

and

can

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 environmental costs, and CV appears to be the only

method to assess non-use values, a potentially important component of these costs.1 1

CONTROL COST VALUATION

Control cost valuation infers the value of environmental impacts by examining the pattern of public

decisions recorded in regulations, laws, and court

rulings. By determining the cost of the controls

mandated by these decisions, and their benefits in

terms of environmental effects, the dollar value of

those effects can be estimated. Control cost valuation is also termed “shadow pricing” or “revealed

preference” valuation.

For example, the Tellus study uses control cost

valuation to estimate the environmental cost associated with various air emissions, including NOX

,

SOX, and C02. To estimate each of these costs, the

Tellus study takes cost estimates for various pollution control technologies whose use is mandated

by federal or state regulation. The study then divides these costs by the emissions reductions (in

pounds) that the technologies achieve. This calculation produces a cost per pound figure that is

used as an estimate of the environmental cost per

pound of emissions.

The major advantage of control cost valuation

is its simplicity. Control costs can be calculated

merely by dividing the cost of mandated controls

by the emissions reduction achieved by the controls. The data for these two numbers are relatively uncontroversial and easy to obtain. In contrast,

alternative methods require tracing emissions

from generation (e.g., S02 from a coal plant),

through intermediate pathways (acid rain), to

eventual environmental impacts (forest damage).

Then the impacts must be valued. That process

introduces many uncertainties and potential analysis problems.

However, analysts point to a variety of failings

associated with control cost valuation. First, it is

criticized as representing circular reasoning.

Many analysts believe one important goal of environmental cost analysis is to compare the costs

and benefits of environmental regulations. If the

cost of regulations (i.e., cost of environmental

control technologies) is used to estimate the benefits (i.e., environmental costs avoided), then a

meaningful comparison of costs and benefits is

impossible. This argument is explored in more detail in chapter 4.

Second, control costs can vary widely. Studies

of cost per life saved have indicated large variations in the values implied by the costs and benefits of different regulations. Critics of control cost

valuation use this variation as evidence of problems with the method. If the values vary so widely,

then regulations clearly do not represent a rigorous weighing of costs and benefits. However,

some supporters of control cost valuation are not

so troubled by these variations. Supporters argue

that control costs indicate the minimum costs regulators are willing to impose. Because of this belief, studies that use control costs valuation often

use the highest cost of control. 12

MITIGATION COST VALUATION

Like control cost valuation, mitigation cost valuation attempts to infer environmental costs from

the costs of responses to environmental damage.

In contrast to control cost valuation, however,

mitigation cost valuation does not examine costs

imposed by current regulations. Instead, it examines prospective mitigation costs under the presumption that additional environmental impacts

1 l~ew conclusions me supported by a review by the National Oceanographic and Atmospheric Administration’s (NOAA) panel on Contingent 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 1989

Update,” A Report to the Boston Gas Co., Dec. 22, 1989, p. 7.
Chapter3 Methods for Valuing Environmental Costs 143

should be avoided. Mitigation can involve reversing damages (e.g., treating diseases or replacing

damaged goods) or intervening between intermediate and final environmental effects (e.g.,

“liming” mountain lakes to reverse the effects of

acid rain).

Several studies use mitigation costs to estimate

environmental costs. The Pace study uses mitigation costs to estimate the costs of C02 emissions—an area where cost estimates are

notoriously difficult. It examines the costs associated with growing forests to capture and sequester

carbon. Similarly, the Hohmeyer study uses mitigation costs to estimate the cost of C02 emissions.

It estimates the costs of bolstering Germany’s

coastal defense works (e.g., dams and locks) to

avoid the effects of an increase in worldwide sea

levels that are thought to be one effect of global

warming.

Mitigation cost and control cost valuation both

have the advantage of simplicity and the disadvantage of being viewed as involving circular reasoning (see chapter 4 for details) .13

CONCLUSION

The differences among valuation techniques have

been a source of substantial debate and controversy in the analytical community. The differences

involve the types of evidence considered. Market

and hedonic methods look at the purchasing decisions of individual consumers in actual markets,

control cost valuation examines the decisions of

government regulators, and contingent valuation

examines the answers of survey respondents.

Perhaps the most contentious and long-standing debate over valuation methodology has been

between supporters of valuation methods that are

grouped under the label of damage costing (i.e.,

market, hedonic, and contingent valuation) and

valuation methods grouped under the label of control costing (i.e., control cost and mitigation cost

valuation). This debate continues to dominate

many discussions of environmental cost studies.

It is covered in greater detail in chapter 4.

The debate over these differences sometimes

obscures a basic fact: all valuation approaches involve assumptions about the legitimacy and appropriateness of different types of evidence. These

decisions often depend on questions that are beyond the scope of an individual study, and instead

depend on broad policy goals and how environmental cost studies are used to support those

goals. 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 to

avoiding the environmental effect. However, most use of mitigation costing involves prospective actions intended to keep environmental resources in their current condition.
Assumptions in

T

Environmental

Cost Studies 4

he assumptions underlying any environmental cost study

strongly influence both the overall structure of the study

and its quantitative results. Varying assumptions can include or exclude entire classes of environmental effects

from consideration. For example, the assumption that studies

should evaluate only relatively certain effects could exclude the

potential effects of C02 emissions on global climate. For effects

that are included in a given study, different assumptions can lead

to dramatically different numerical estimates of the value of those

effects. For example, monetized estimates of damage to wilderness 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 includes

non-use values, recreation impacts, and endangered species impacts, then the estimate may be much larger.

Assumptions are an integral part of any environmental cost

study. l This does not mean the studies are intentionally biased.

Rather, every environmental cost study is conducted within a

general framework of assumptions and values. When these

frameworks are the focus of social and political debate, environmental cost studies can become the focus of substantial controversy—as they have in some cases.

Underlying assumptions are a particular problem in environmental 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. Although it does not discuss this framework within the context of competing frameworks, it

makes its own framework reasonably clear.

I

I 45
. — —

46 I Studies of the Environmental Costs of Electricity

using results from many other types of environmental studies, including studies of emissions

generation, transport, deposition; environmental

impact; risk assessment; and economic valuation.

Because of this broad scope, environmental cost

studies face a vast array of vexing problems that

have emerged in the past two decades of research

in biology, engineering, economics, and social

science (see table 4-l).

Because environmental cost studies employ the

results of these smaller studies, they necessarily

take on their assumptions and uncertainties, and

then add assumptions and uncertainties of their

own. As a result, studies of environmental costs

are likely to require a larger number of assumptions, to yield results with greater uncertainties,

and to engender more controversy than studies of

more limited scope.

There is no clear agreement about the most relevant set of assumptions, and this lack of agreement is reflected in how actual studies are

conducted. Different environmental cost studies

use different assumptions about how to define environmental costs, how to value environmental effects, and how to handle uncertainty. The lack of

agreement is discussed in numerous critiques of

published studies. Economists, ecologists, regulators, and others frequently argue over the propriety of assumptions made in specific studies.

Several existing reviews of environmental cost

studies examine these assumptions at some level

of technical detail.2 These critiques are useful to

analysts who are interested in improving the

methodology of future studies and to policy makers who wish to evaluate the findings of an individual study. However, from the standpoint of

using these studies in federal policymaking

important to realize that all environmental

it is

cost

studies make assumptions that affect their results,

and these assumptions often involve fundamental

questions that lie within the purview of policymakers rather than analysts. These questions include:

■ What is the goal of environmental policy? Environmental cost studies are most frequently associated with the goal of economic efliciency.

Other implicit and explicit goals assumed in

environmental cost debates include equity, sustainability, and protection of health and safety.

What is the role of environmental cost studies

in energy policy? These studies can be used to

quantify economic corrections to energy markets, facilitate compensation for environmental

damages, or guide government regulation to

protect health or encourage sustainability.

How is value determined? Valuation can be

based on consumers acting in markets, legislators and regulators acting in political systems,

scientists studying ecological systems, or government oflicials acting in legal settings.

A few reviews of environmental cost studies

discuss the studies’ underlying assumptions and

values. 3 Many of the concepts in those reviews are

discussed in this chapter. In addition, several other

reviews of related areas have concluded that differences in assumptions underlie many of the disputes over quantitative studies of environmental

issues (see box 4-1 ). Reviews of the health effects

of air pollution, the economics of salmon preservation efforts, and the risks of the herbicide

alachlor all identify the importance of studies’ underlying values and assumptions.

Despite the findings of these reviews, explicit

discussion of the fundamental questions that underlie the assumptions of environmental cost

studies, and even a recognition that these ques2For ~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 Summary 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 environmental cost analysis. Instead, the studies deal with

the details of implementing the assumptions (e.g.,

the sources of data, the calculation techniques,

and the intermediate results). Even if a study’s authors discuss its assumptions at length, a technical

analysis is unlikely to resolve the issues involved.

In general, environmental cost studies reflect,

rather than address, the political and social debates over these questions.

This chapter illustrates how many of the most

controversial methods and assumptions of environmental cost studies are related to more fundamental questions. It discusses several major issues

in environmental cost analysis and presents an

overall framework to help organize and explain

different sets of assumptions.

ISSUES AND UNDERLYING

ASSUMPTIONS

Decisions about valuation and other methodologies do not take place in a vacuum. Such decisions

are made in the context of assumptions about the

goals of policy, the intent of the study, and what

valuation is intended to achieve. Such assumptions become clearer in the context of debates over

particular methodological issues. This section

discusses selected issues, outlines the positions

taken by different analysts, and identifies assumptions that lie at the core of each debate. Although

other important issues may exist, the issues discussed here illustrate the importance of assumptions to the conduct and findings of environmental

cost studies.

| Quantification and Monetization

Environmental cost studies inevitably consider a

collection of disparate effects. For example, evaluating the environmental costs associated with

coal may involve combining occupational deaths

and injuries from coal mining, chronic health

effects of power plant emissions, ecological damage from global warming, property damage from

acid rain, and resource depletion resulting from

burning fossil fuels. Without a common set of

units, these effects cannot easily be compared

with each other or with the costs of controlling

them-decisionmakers are left comparing “apples and oranges.”4

The approach generally taken in environmental

cost studies is to express all environmental effects

in numeric form (quantification) and then to cong~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 utilities are considering techniques that involve weighting and ranking impacts without explicit monetization (Robert L. San Martin, U.S. Department of Energy, personal communication, July 7, 1994). However, existing environmental cost studies do not employ these techniques.
48 I Studies of the Environmental Costs of Electricity

Several independent studies have concluded that values and assumptions are fundamental to quantitative evaluations of environmental effects. Some of these studies are directly relevant to energy because they deal with a subset of the issues considered in environmental cost studies of energy (e.g., air

pollution from fossil fuels and salmon losses from hydroelectric generation). To the extent that these

smaller studies are strongly influenced by values and assumptions, then the results of energy studies

will be as well. Other studies deal more generally with environmental effects of non-energy activites

(e.g., alachlor),

The Health Benefits of Air Pollution Control

In 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 review

of literature, six CRS-contracted assessments of current knowledge and methods, and a colloquium at

which the authors and commentators discussed the studies and their implications. The study concludes:

. . . it is not currently feasible to produce an unambiguous evaluation of the health benefits of controlling air pollution . . . Estimates vary greatly, for two primary reasons: First, scientific uncertainties and data limitations necessarily result in estimates based on interpolations, projections, and assumptions. Second, the different professional 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 Salmon

Since 1984, researchers at Resources for the Future (RFF), a Washington-based independent research organization, have been studying the effects of hydropower on salmon populations in the Pacific

Northwest. In summarizing some of RFF’s recent experience with economic assessments of the costs

and 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 approach 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 preservation, the oftentimes narrowly-focused values of a reductionist approach are less-than-ideal information providers to a policy problem that begs for insight into multiple values.

The Risks of Alachlor

Researchers 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~iPo//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 Endangered Species Act: Incorporating Diverse Viewpoints in Recovery Planning for Pacific Northwest salmon,” Discussion Paper

QE93-11, 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,
Chapter4 Assumptions in Environmental Cost Studies 149

vert those numbers to a single unit of measure

such as dollars (monetization).s The total monetary value of an energy source’s environmental effects can then be compared easily with the total

costs of other sources and with the costs of controlling those effects. If all effects of an energy

source can be expressed in a monetary value, then

two or more electricity generating technologies

can be easily compared, and the option with the

lowest total cost is clearly preferable. The costs of

an energy source’s environmental damages also

can be compared with the costs of controlling

those damages—helping to decide whether additional controls are warranted. If multiple units of

measurement are used (e.g., dollars, lives, and

acres of forest), then simple quantitative comparison becomes difficult or impossible.

All the studies discussed in this report quantify

and monetize at least some of the effects they identify.6 Several authors note that important classes

of effects were either not quantified or not monetized in their studies. For example, Pace did not

produce monetized estimates for impacts from

greenhouse gases such as methane (CH3

) and nitrous oxide (N20), air toxics, water use, land use,

solid waste disposal, or the extraction and transportation of fossil and nuclear fuels. Similarly,

Hohmeyer did not produce monetized estimates

for impacts such as the psycho-social costs of

deaths and illness, health care costs, the costs of

losing biological species, certain costs of climatic

changes, environmental costs of routine operation

of nuclear plants, and aesthetic and land-use costs

of renewable energy.

All of the studies reviewed in chapter 2 monetize the damages deemed reasonable by the

study’s authors. However, not all studies include

the same damages. Damages may be excluded because a study’s authors thought a damage was unquantifiable, or because they thought it was small

enough to be ignored. Nearly every study explicitly notes broad classes of environmental costs that

were not monetized.

Critiques of Quantification

Environmental cost studies focus on effects that

can be expressed in quantitative terms. These

terms are easier to discuss and handle analytically,

and they can be presented in tables and graphs.

The quantified results of environmental cost studies are almost always featured prominently when

the results of studies are reported in technical literature and news accounts.

Accurate quantitative results can be among the

most useful outcomes of an environmental cost

study. If well presented, quantitative results can

communicate a study’s findings clearly, and they

can give readers an idea of the relative magnitude

of different sources of effects that have the same

units of measure. Quantitative results also can be

used easily by other analysts who are building on

the work of the original study.

These advantages have led many analysts to

pursue environmental cost studies—to quantify

important environmental effects not currently

quantified and thus not included in energy decisionmaking. Their success, however, has been

incomplete. A variety of effects remains unquantifiable. Most environmental effects of energy

sources have consequences that cannot be quantified.

Several analysts urge caution in the use of

quantification and contend that nonquantitative

results of environmental cost studies are at least as

important as quantitative results.7 Focusing only

on quantitative results may construe the results of

studies so narrowly that the studies’ main points

are missed. Underlying much of the environmental cost literature, however, is a strong drive to es5~1s ~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.

7

See footnote 3.
50 I Studies of the Environmental Costs of Electricity

timate and report quantitative results, often to the

exclusion of nonquantitative ones.

Some studies (e.g., Shuman and Cavanagh)

make an attempt to estimate even highly speculative effects, choosing to reflect the uncertainty in

the ranges of the final results, rather than not include any estimates at all. Many other studies,

however, only note that certain effects were not

considered.

Critiques of Monetization

Monetization attaches estimates of value (most

often expressed in dollars) to environmental effects. In general, these effects first have to be

quantified in some way (e.g., days of lowered visibility or numbers of acres of forest affected).

Then, a monetary value is attached to the quantified effect by using a valuation technique such as

contingent valuation, hedonic valuation, or control costing (for details, see chapter 3).

Supporters argue that monetization is both a

useful and inevitable part of energy decisionmaking. Considering no information about an environmental effect is equivalent to setting a value of

zero.

8 Considering only qualitative information

about an effect is equivalent to some quantitative

value, although that value is never specified.9

However, the difficulties of monetizing environmental effects are so great that some analysts

argue against it. The argue that the important characteristics of environmental effects include not

only the expected harm,10 but also a range of other

measures:

ll

| Probability and consequences: Although the

expected harm of two environmental effects

may be equivalent, the characteristics of those

harms’ probability and consequences may differ substantially. For example, nuclear reactor

accidents represent a large portion of the environmental costs of nuclear power in some studies. Such accidents are relatively unlikely, but

could have extremely large consequences if

they were to occur. Other risks (e.g., mining

deaths and injuries) are relatively certain and

have comparably small consequences. Comparing or combining these two risks can be

problematic.

● Distribution of damages across space, time,

and classes of victims: Where, when, and to

whom impacts occur can affect how risks are

perceived. For example, effects such as industrial accidents are immediate and affect only

workers in a particular industry; global warming may remain a problem for centuries and

may affect people who received little or no

benefit from the electricity generation that led

to the warming.

• Degree of personal control: The likelihood of

some effects can be reduced by actions taken by

affected individuals. For example, drivers can

take extra care at railroad crossings to reduce

their own likelihood of being killed or injured

in rail accidents. Other effects, such as air

pollution, are more difficult to avoid.

● Degree of irreversibility: Some environmental

effects are reversible, others are not. For example, reduction of agricultural crop yields can be

compensated for by production elsewhere; a

unique ecosystem that is severely harmed by

power plant emissions may be irreplaceable.

Because there is no generally accepted method

for 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.
Chapter4 Assumptions in Environmental Cost Studies 151

single number,

12 some critics argue that monetizing and aggregating environmental effects are inappropriate tasks for analysts. Deciding how to

weigh the different components of environmental

effects is necessarily a matter of personal values

as well as technical judgment. As a result, such decisions use as much political and social judgment

as they do economic and ecological data.

Most critics of aggregation are not arguing that

such valuations should never be made by anyone,

only that such decisions should not be made by

analysts. 13 Clearly, tradeoffs between environmental harms are necessary to make, but critics argue that such decisions should be made in public

forums, not in analysts’ offices.

Impacts

Merely because a factor cannot be quantified or

monetized does not mean it is unimportant. ] 4 For

many conventional sources of energy, some of the

environmental effects that are potentially the most

damaging are the ones most resistant to convincing quantification and monetization. For example, nearly all the environmental cost studies

reviewed in chapter 2 either explicitly exclude estimates of the costs of global warming or they produce estimates they regard as highly speculative.

When studies do make estimates of costs associated with global warming, however, it often represents the largest single category of costs.

Unfortunately, nonquantitative results of environmental cost studies are often ignored in preference to results that can be expressed in monetary

terms. Quantified results are easy to cite and summarize, whereas nonquantitative results are difficult to convey without long quotations or textual

summaries. As a result, monetized results may receive more attention in news coverage and summaries aimed at policy makers.

In such cases, the inability to quantify and monetize all environmental effects may lead users of

environmental cost studies to underestimate the

total effects of some energy sources. If important

effects of some energy source are inherently difficult to quantify and the monetized results dominate the presentation of conclusions, then the

study may provide an inaccurate picture, despite

solid analysis.

In addition, in studies that do not monetize all

effects, far more attention must be paid to how results are presented. Such studies present results

that are much more multifaceted and disparate,

and thus require analysts to explore approaches to

presenting complex data simply and clearly.

Underlying Assumptions

Decisions about quantifying and monetizing environmental effects reflect assumptions about the

policy goals that environmental cost studies are

meant to support and the process by which decisions about the environment should be made.

Studies conducted within an economic framework often assume that economic instruments

(e.g., pollution taxes) are the policy tool of choice.

From this perspective, monetizing environmental

impacts and combining them into a single value is

entirely appropriate. Establishing such instruments requires that all environmental effects be

summarized in a single number-the economic

value of those effects. With such an estimate in

hand, almost all that remains for decisionmakers

is to use these values to establish appropriate economic incentives for energy producers. In studies

conducted in noneconomic frameworks, there is

far less agreement and less focus on specific

policy instruments.

Furthermore, different analysts appear to have

different 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.
52 I Studies of the Environmental Costs of Electricity

for making environmental decisions. Many supporters of monetizing environmental effects argue

that individual preferences (expressed as monetary values) accurately summarize the overall value of any particular effect and that these estimates

can be added (either across individual people or

across individual effects) to reflect the overall environmental effects of an energy source. For example, an analyst might derive the cost associated

with decreased visibility from coal emissions by

determining an average individual willingness-topay from a survey of several thousand consumers

and multiplying this by the total number of persons whose visibility would be affected. By conducting a similar process for each environmental

effect, the analyst would add up all the costs and

derive an overall estimate of damages for coalfired generation.

However, some critics of monetization argue

that choices about the environment are inherently

a public function, not an activity that can be done

outside of a public forum. 15 They claim that valuing the environment involves more than individuals acting as consumers and responding to surveys

that estimate their willingness to pay for environmental improvements. Choices about the environment necessarily involve individuals acting as

citizens involved in public debate, airing differing

viewpoints, allowing individuals to become more

fully informed, and finally choosing a course of

action through a democratic process. To these critics, monetization usurps a public function.

| Damage Costs VS. Control Costs

Environmental cost studies differ in the valuation

methods used. Valuation methods are often divided into two categories-damage cost methods

and control cost methods (see table 4-2). Damage

cost methods trace the effects of energy generation

from emissions to eventual environmental damages. The monetary value of those damages are

then estimated using market, hedonic, and continMethods

Damage cost Market valuation

Hedonic valuation

Contingent valuation

Control cost Control cost valuation

Mitigation cost valuation

gent valuation. In contrast, control cost methods

circumvent this lengthy process by assuming that

current environmental regulations implicitly value the environmental damages that regulations

prevent. By examining the costs that legislative

and regulatory bodies impose on utilities to prevent some environmental damages, analysts can

estimate the value of the remaining damages.

Control cost methods have been pursued largely on pragmatic grounds. In most cases, control

costs are substantially easier to estimate than damage costs. Most analysts who use control cost

methods agree that damage costs would be preferable, but they contend that estimating damage

costs is often hopelessly complex. Control costs

are a “second-best” solution, they argue—a way

of obtaining rough estimates without the immense

analytical effort required to estimate damage

costs.

Several studies use control cost methods to value environmental effects. The studies by Pace,

Tellus, Chernick and Caverhill, Hohmeyer, and

Shuman and Cavanagh all make at least some use

of control cost methods, although the extent of use

varies widely (see chapter 2 for details). Of the

studies 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).
Chapter4 Assumptions in Environmental Cost Studies 153

damage cost approaches exclusively.lb Control

costs also are used by many state regulatory commissions that have incorporated environmental

costs into utility requirements.

Critiques

Studies that have used control cost approaches

have drawn heavy criticism.

17 For example, critics argue that public decisions do not represent a

consistent and rigorous weighing of costs and

benefits. Several studies have indicated that different regulations result in widely varying costs

per life saved.18 Such evidence is used to bolster

the claim that current regulations are not economically efficient. Regulators either lack the appropriate information or, as in the Clean Air Act,

are barred from considering the costs of control.

Thus, critics argue, the implicit values assigned by

environmental regulations are likely to be incorrect.

Supporters of control cost methods argue that,

although control costing is imperfect, it represents

the only currently feasible way to evaluate most

costs. 19 Damage cost methods require an understanding of the emission of pollutants, the transport of those pollutants, the exposure of humans

and ecosystems, and the dose/response relationship of those exposed. This multiplies the number

of assumptions that a study must make and leaves

room for substantial bias and error.

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

based on damage costs. For example, studies of

individual judgments about risks are notorious for

finding seemingly “irrational” choices.20 These

choices presumably would be reflected in purchasing decisions and survey responses and thus

would afflict damage cost methods such as hedonic and contingent valuation. This has been borne

out in contingent valuation surveys, where actual

responses do not match the theoretical predictions

of optimal consumer behavior (see chapter 3).

In fact, it is arguable that methods based on “revealed preferences,” whether they be the revealed

preferences of regulators (e.g., control cost valuation) or consumers (e.g., hedonic valuation), are

more likely to reveal accurate answers than contingent valuation estimates. Revealed preference

methods, at least, have the benefit of operating under some budget constraints and requiring real actions on the part of participants. In contrast,

contingent valuation operates mainly within a hypothetical realm of what respondents say that they

would do under the given circumstances, and past

surveys have often lacked a budget constraint.

In addition to these methodological problems,

however, some critics believe that control cost

methods have an even greater flaw. They argue

that control cost methods are not just inaccurate,

but are nonsensical because they assume precisely

what they should be trying to evaluate—whether

current environmental regulations are economically efficient. Because the goal of evaluating environmental 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 draft

versions of this report, several reviewers labeled the eight studies that OTA reviewed as “damage cost studies” or “control cost studies. ” However, 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).
54 I Studies of the Environmental Costs of Electricity

benefits of environmental controls appropriately,

they argue, then using control costs as a measure

of environmental benefits entails circular reasoning.21,22 To allow balancing of costs and benefits,

the estimates of these two quantities should be arrived at independently.

Impacts

There is disagreement over the impact of using

control cost methods rather than damage cost

methods. Supporters of control costing often argue that the methods probably underestimate the

value of environmental effects of energy. Critics

of control costing often argue that the methods

vastly overestimate their value.

Control cost methods could underestimate environmental costs for several reasons. First, existing regulations may be an environmental

“bargain” in the sense that they cost far less than

the nation’s citizens would be willing to pay. Just

because citizens support one level of spending on

environmental control or restoration does not

mean they would be unwilling to support even

higher costs for the same programs. In this way,

control cost supporters argue, control costs represent only a lower bound on the value of environmental effects .23 In most cases, then, control costs

represent an underestimate. Second, some argue

that current environmental regulations systematically undercontrol environmental effects due to

political reasons.

24 If this is true, then control cost

methods would systematically underestimate the

value of environmental effects.

Conversely, some critics claim that control cost

methods may overestimate environmental costs.

First, according to these critics, current regulations already overcontrol some pollutants. Using

control costs for these regulations overestimates

the value of the remaining emissions. Second, using the highest cost of control, as some studies

do,25 purposely selects for high values. These values may be too high due to ignorance or miscalculation, not because of careful evaluation about

the costs citizens are willing to pay to avoid environmental damages. Using the highest cost of

control, critics argue, is likely to inflate environmental cost estimates artificially.

Underlying Assumptions

Part of the dispute over the use of control cost approaches stems from underlying disagreements

over policy goals and how environmental cost

studies should be used to support those policy

goals.

Critics of control costing often assume a policy

goal of economically efficient regulation.2b In this

framework, consideration of environmental costs

represents a way of reforming environmental

regulation—in particular, of reforming current

command-and-control regulations with more

market-based approaches, such as emissions taxes

and tradable permits. This type of reform requires

a balancing of economic costs and benefits. Within such a framework, the use of control cost methods appears to be nonsensical because it equates

costs and benefits-using the costs of pollution

controls to estimate the benefits associated with

those 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 in

policy goals other than economic efficiency.

Policy goals such as protection of health and safety, sustainability, and equity do not focus on balancing costs and benefits. In addition, supporters

of control costs generally are more interested in

the overall ability to compare the effects of energy

sources than in implementing specific market incentives.27 From these perspectives, control costs

appear to be a more valid method for arriving at estimates of environmental costs. The fact that they

derive from existing regulations is important only

in evaluating their accuracy, not their overall legitimacy.

Of course, the fact that some uses exist for control cost methods does not excuse their use for purposes to which they are not suited. If the goal of

a particular environmental cost analysis is to balance costs and benefits, then control cost methods

would embody circular reasoning. However, it is

equally mistaken to say that control cost methods

have no place whatsoever in environmental cost

analyses that have goals other than economic efficiency.

Another portion of the dispute over the use of

control costing stems from underlying disagreements over who should be empowered to make

valuation decisions. 28 Proponents of control cost

methods point out that the technique is merely extending the coverage of previous decisions made

by elected and appointed government officials.

Proponents of damage cost methods often point

out that their estimates come from studies of consumers (i.e., contingent and hedonic valuation).

These methods allow individual citizens to express their will more directly.

This issue demonstrates the tight links between

seemingly technical issues of environmental cost

studies and deeply held values about society and

decisionmaking. Valuation brings out issues of

55

how environmental problems are viewed and issues about what groups are invested with the power to make decisions that affect the health of

individuals and ecosystems.

I Average Effects vs. Marginal Effects

One approach to determining the environmental

effects of individual generating plants is to consider their average effect. For example, to determine the S02 emissions of an oil-fired plant, an

analyst might find out the emissions of a random

sample of generating plants and find the average

number of pounds of S02 emitted per kilowatthour of electricity that reaches consumers. Similarly, an analyst attempting to determine the

environmental impact of a pound of S02 might

find the overall damages attributed to S02 emissions and then divide by the total number of

pounds of the pollutant known to be emitted.

Another approach is to consider the marginal

effect of an individual generating plant. For decisionmakers who are deciding whether to build an

oil-fired plant, the relevant figure is how much

S02 will be emitted by the new plant, not by the

average plant that is now operating. The average

figure will include old plants that are just a few

years from retirement as well as new plants that

were just constructed. Similarly, the environmental impacts associated with an additional pound of

S02 maybe substantially different from the average damage.

These examples illustrate the difference between average and marginal effects. Economists

are quick to point out that, for most decisions, it

is the marginal effects that matter. For policy decisions such as building new power plants, taxing

pollutants, and setting emissions limits, the marginal effects indicate what marginal benefits could

be achieved by the measures.

ZgShuman and Cavanagh note: ‘The controversy over the ‘true’ value of human life may mask an intractable moral question about who

should 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 determining the emissions of new plants. Estimating

the marginal cost might also be used for other purposes, such as determining which existing power

plants to dispatch,29 determining appropriate

compensation for those who live near existing

plants, or determining what plants to remove from

service.

A special case of this problem is location specificity. Some studies attempt to produce national

average estimates of the environmental costs associated with different types of generating plants.

However, local conditions can vary greatly. Factors such as weather, surrounding ecosystems, and

population density all are important inputs to en30 Some studies vironmental cost calculations.

have dealt with this problem by limiting the study

to a relatively homogeneous region; for example,

Shuman and Cavanagh focus on the Pacific

Northwest. Other studies produce different estimates for different sites. For example, the BPA generic coal study provides six different estimates of

environmental costs based on geographic location

and the population of nearby cities.31

Critiques

Some environmental cost studies have been criticized for looking only at average effects. Critics

argue this misrepresents the options available to

decisionmakers. Decisionmakers (whether economic, regulatory, or legislative) can only affect

energy generation at the margin (e.g., by choosing

what plants to construct, modify, or shut down).

The issue of marginal effects is particularly important to economists, but ecologists also argue

for considering marginal effects. Ecological responses are often nonlinear.32 Although little ecological damage may have resulted from current

levels of pollution, additional amounts can have

effects that are dramatically worse. Thus, ecologists argue, considering average effects of pollution may substantially underestimate the effects of

some pollutants.

Most studies to date have examined average effects. In general, this has been because of the difficulty of examining marginal effects. There is great

uncertainty in the estimation of average effects;

marginal effects represent an even greater analytical challenge. However, a few studies have examined site-specific numbers. The DOE/EC

study is focusing on specific sites in an effort to

avoid this problem. Other studies have emphasized the environmental effects of new plants in an

effort to avoid some of the pitfalls of considering

average effects.

Impacts

The impact of considering average rather than

marginal effects depends on the effect being examined. Considering average ecological effects

probably lowers environmental cost estimates.

Current levels of pollution maybe assimilated by

the environment in ways that increased levels

could not be. Similarly, if thresholds exist for ecological and human health effects from certain pollutants, 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 Bonneville

Power 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.
Chapter4 Assumptions in Environmental Cost Studies 157

cross those thresholds, resulting in ecological and

human health effects that were not present previously.33

The impact of considering emissions from average electric generating plants is less certain. In

general, newer plants are cleaner than plants based

on older technology, but plant location matters as

well. A specific plant may have higher or lower

emissions depending on how its location

compares with that of the generating plants used

in the calculations of average environmental

costs.

Underlying Assumptions

Arguments about the relative merits of considering average and marginal costs rest on assumptions about the role of environmental cost studies

in policy. Analysts concerned with economic efficiency are likely to focus on the importance of

marginal analysis when considering power plants

and other technological infrastructure. In this

view, considering average costs will raise environmental cost estimates artificially because, for

example, new plants are cleaner than old ones.

Analysts concerned with sustainability are

more likely to focus on the importance of considering marginal effects on ecosystems. In this view,

considering average costs will lower environmental cost estimates artificially because, for example, it will not account for the probability of

crossing some unknown threshold-beyond

which an ecological system cannot assimilate

additional pollutants.

| Internalization

When examining environmental costs, economists are particularly concerned with internalization. Every environmental cost analysis attempts

to quantify environmental damages in monetary

terms, but economists generally go a step further

to ask whether existing environmental regulations

already internalize, or account for, these damages

(see box 2-2 for the economic theory of externalities and internalization).

Many existing environmental cost studies

largely ignore the question of internalization. Of

the six completed studies reviewed by OTA, none

systematically considers whether current regulations have internalized some or all environmental

costs. The ongoing DOE/EC study will carefully

delineate between damages and externalities for

each damage pathway.

34The ongoing New York

State study has determined that a few classes of

environmental damages were already internalized

and excluded them from further consideration.

Critiques

When reviewing environmental cost studies, utility and industry representatives often respond by

citing the large number of environmental regulations with which they already comply. A large

number of existing regulations control human

health and environmental impacts of mining,

construction, transportation, and electricity generation activities.

Some critics of current environmental cost

studies argue that, if a pollutant is currently regulated, and utilities are in compliance with that regulation, then no economic externality can exist.

This argument generally is made from one of two

perspectives. One perspective is that current regulations accurately weigh environmental costs and

benefits. This is the same assumption that some

economists criticize when it is used to justify control costing. However, to the extent that current

regulations do balance costs and benefits, it can be

argued that the regulations internalize the environmental costs associated with the pollutants they

regulate. An alternative perspective is that some

current regulations require that pollutants be reduced 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 environmental costs. For example, there may be situations where “the damage is done” and the marginal damages might be less than the average damages.

3’$pathway5 are the links between emissions and impacts (See figure 2-1).
58 I Studies of the Environmental Costs of Electricity

occur. For example, the criteria for setting standards under the Clean Air Act is to “protect health

with a margin of safety.” By this reasoning, electricity utilities in compliance with standards

should not produce any significant health effects,

let alone effects that can be considered to be externalities.

Several responses are made to the argument

that current regulations completely internalize environmental costs. First, existing regulations neither eliminate environmental effects entirely, nor

do they effectively balance them against control

costs. Health effects remain even after regulation

and those effects are not always accurately balanced against the costs of control.35 Some argue

more broadly that relatively few environmental

impacts are reflected in the market costs of energy,

so largely ignoring internalization is appropriate. 3G

Second, some supporters of environmental cost

studies reject a strict definition of externalities.

They argue that it is important to understand the

environmental effects of energy regardless of

whether they are “internalized.” Third, some

economists argue that, in some cases, current regulations are largely irrelevant to determining externalities. Instead, studies can use the marginal

environmental damages as a reasonable estimate

of externalities.37 Consistent with this conclusion, some studies, such as the Pace study, argue

it is important to consider the costs of residual

emissions—those emissions that remain after regulations have been imposed.

Impacts

Assuming that current regulations eliminate all

externalities certainly would produce lower estimates of environmental cost. When studies assume that regulated pollutants still can produce

externalities, they will include a larger number of

effects than if they used a more restrictive definition. For example, risks of occupational deaths

and injuries are assumed, by at least some analysts, to be compensated for by increased wages in

hazardous industries. If environmental costs are

defined as only those effects that are not already

included in market prices, then occupational

deaths can logically be excluded from total cost

estimates. If environmental costs are defined more

broadly as all environmental effects, however,

then occupational risks should be included, and

cost estimates will increase.

Underlying Assumptions

The issue of whether internalization is important

depends upon assumptions of what policies environmental cost studies are intended to support. Estimating the monetary value of environmental

damages associated with energy production,

something all environmental cost studies do, addresses one question: What is the monetary value

of the environmental effects of energy? Evaluating whether those damages are already internalized helps to address another question: What

should we do about it? Both questions are important, but a study does not necessarily need to answer the second question in order to be useful.

To achieve a policy goal of economic efficiency, assessing the current degree of internalization

is vital. Estimates of uninternalized environmental costs are necessary to achieving economic efficiency through economic instruments such as

pollution 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 Resource Supply Planning,” Discussion Paper QE92- 14 (Washington, DC: Resources for the Future, 1992).
Chapter4 Assumptions in Environmental Cost Studies 159

internalization achieved by current regulations, it

would not be clear where to set pollution taxes.38

If, however, the intent of an environmental cost

study is to support different policy goals, then the

degree of internalization may be less important.

For example, to inform policies concerned with

equity, it would be important to know who is affected by pollutants, even if the effects of those

pollutants are fully internalized in an economic

sense. Merely because utilities are taxed for the

pollutants they generate, for example, says nothing about whether those affected by the pollutants

are compensated.

Thus, for purposes other than economic efficiency, it can be useful for studies to estimate the

costs of environmental effects, regardless of

whether those effects are already internalized.

Furthermore, estimating such costs is necessary

before economic externalities can be estimated. In

this sense, investigating and detailing all environmental effects is useful regardless of the policy

goal.

| Managing Uncertainty

Environmental effects differ in the certainty with

which they can be established. Some effects are

fairly well understood. For example, mining accidents are a known risk of coal-fired electricity

generation. Accurate statistics have been kept for

decades and the frequency and magnitude of the

risk are well understood. Other risks are less certain. For example, the probability and consequences of large-scale nuclear reactor accidents

are still the subject of substantial debate.

How to estimate and represent uncertainty is a

persistent problem for many types of quantitative

studies, but it can be a particular problem for environmental cost studies.39 The data and relationships used in environmental cost studies are often

uncertain, and this uncertainty propagates

throughout the study and affects the final results.

Furthermore, uncertainty tends to increase as the

study moves from inputs to final results (e.g.,

from emissions to valuation).

Systematic treatment of quantitative uncertainty is not easy. The uncertainty of each piece of input data must be assessed, and then these

uncertainties must be combined in a credible way.

Analytical methods that combine uncertainties

often make fairly large assumptions (e.g., that the

uncertainty associated with one piece of input data

is independent of the uncertainty associated with

others). Even with these assumptions, however,

the combination of many uncertain inputs is analytically challenging.,4041

Critiques

Analysts differ on how to handle uncertainty.

Some analysts argue for a restrictive stance on

which effects to include. They exclude uncertain

effects because they are too speculative and are

likely to artificially inflate estimates of environmental costs. Other analysts are fairly liberal

about which effects to include. They include un38An 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 Management (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~eDo~Ecstudy 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 Laboratory 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, ORNIJ

M-2500, November 1992, pp. 2-23-2-26.
60 I Studles of the Environmental Costs of Electricity

certain effects because of concerns about grossly

underestimating the true effects of energy production. Finally, some studies give a range of estimates, reflecting different thresholds of

uncertainty.

For example, studies differ in whether they

consider potential damages from global warming

caused by greenhouse gas emissions. Some studies, such as the New York State study, have concluded that the uncertainties of estimating

damages associated with C02 are so great that

they will not attempt an estimate and will instead

assign a default value of zero.42 Other studies,

such as Shuman and Cavanagh, assign a highly

uncertain value to the damages, varying between

zero and more than half of the total damages associated with coal generation.

Many current environmental cost studies do

not systematically consider uncertainty throughout their calculations. In general, the studies make

point estimates of potentially uncertain data and

uncertainty is only discussed in the report’s text,

not indicated in the reports’ quantitative results .43

Point estimates are rarely rounded to reflect their

rough level of accuracy.

Impacts

A study’s approach to uncertainty can have significant effects on results. Including uncertain environmental effects can only increase the estimates

of environmental costs. Ignoring the issue of uncertainty may make the studies useless from a

policy standpoint. If the cost differences between

energy sources are significantly smaller than the

range of uncertainty of the estimates, then the estimates will be of little value. Whether this is true

of current estimates is difficult to say, given the

way in which many current studies handle uncertainty. Readers are left with a clear idea of the studies’ “best guesses,” but little quantitative idea of

the possible range of results.

Underlying Assumptions

Approaches to resolving uncertainty vary greatly

and rest at least partially on value judgments of the

analysts involved. For some, a lack of evidence indicates relative safety—if risks were present, then

research would have indicated their presence. To

others, a lack of evidence indicates how little is

known about potential risks—if information is

lacking, then research may be overlooking important risks.44

For example, a recent survey of 22 experts on

the economic impact of global warming demonstrates the different reactions to uncertain evidence.45 Quantitative studies are unable to predict

the consequences of global warming with a high

degree of certainty, so the survey sought to collect

the subjective estimates of various experts. Their

collective judgment might produce estimates of

impacts to be used in quantitative models. However, the survey indicated afar more interesting result. The subjective estimates of different groups

varied widely: mainstream economists expressed

little concern about potential impacts and were

confident that human societies would adapt handily to the changes. In contrast, natural scientists expressed great concern about potentially large and

irreversible destruction of life-sustaining ecosystems.

| Discounting

Discount rates are used to compare economic

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

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 $10

that will be incurred in five years is worth less than

$10 today. How much more depends on the discount rate. For example, if the discount rate is 3

percent, a $10 expenditure five years in the future

is only equivalent to $8.59 today.

The practice of discounting can reflect many

concerns. First, discounting can reflect a fundamental human tendency. People would rather have

a good now than later. Second, it can account for

the productive nature of some resources. Between

now and some future time, some resources can be

productive, generating revenue for their owners.

Resources such as farmland and livestock meet

this criterion. Third, discounting can reflect risk

and uncertainty about the future. The practice of

charging interest on loans is a recognition of the

business risks associated with investments.

Fourth, discounting can be used to adjust for technological change. Environmental damages in the

future may be less harmful than today because

new technologies will be developed to mitigate

them.

Environmental cost studies use discount rates

to adjust some cost estimates. For example, Shuman and Cavanagh’s study uses a 1 percent discount rate for property damage and a discount rate

of zero for human lives. In general, environmental

cost studies have applied discounting to only a

few, long-term effects of electricity generation.

These include the global warming effects of CO2

emissions and the long-term risks of nuclear

waste. Because these impacts are often a significant component of total environmental cost, discounting can be an important issue. However,

discounting does not affect the majority of impact

categories, either because the impact is relatively

prompt (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

and

injuries), or because a valuation technique is used

that avoids discounting entirely (e.g., control cost

valuation).

Critiques

There are several views on how discount rates

should be used to value environmental resources.

Some economists and utility experts argue for using rates similar to those used by utilities for valuing capital investments (e.g., 6 to 8 percent).46

This provides a consistent basis for utility resource selection decisions, but it also has the effect of reducing the value of damages that occur

far into the future (e.g., global warming or nuclear

waste storage) to nearly zero.

Many environmentalists argue for using relatively low discount rates. Low discount rates have

the advantage of treating future generations equally to our own, but they also may cause relatively

certain, near-term effects to be ignored in favor of

more uncertain, long-term effects. Future generations may have new technologies and knowledge

that will cheaply and easily deal with long-term

environmental threats such as global warming or

nuclear waste storage.

Impacts

High discount rates will produce lower damage

estimates because they reduce the costs associated

with environmental impacts that occur in the future. For example, a high discount rate will decrease the importance of the impacts of global

warming. The BPA generic coal study explicitly

ignores the impacts of global warming for this reason.

47 Conversely, low discount rates will result

in 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 responsible 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 study

ignores this amount because it would add less than 1 percent to the total environmental costs that the study attributes to a generic coal plant. ECO

Northwest et al., op. cit., footnote31, pp. 4-7.
—-—

62 I Studies of the Environmental Costs of Electricity

Underlying Assumptions

Some disputes over discount rates can be traced to

assumptions about the relative importance of natural resources (e.g., forests, lakes, and animals)

and technological resources (e.g., roads, dams,

and machinery). Applying discount rates to environmental impacts implies an equivalence between natural and technological resources. The

ability to trade off natural and technological capital has been strongly disputed by some ecologists.

For example, some argue that natural and technological capital can be more clearly seen as complements than as substitutes—implying that we need

both to make use of either.48,49 Although funds

used to construct technological systems can be

banked and spent at a later time, the same cannot

be said of human lives and the important characteristics of ecosystems. Similarly, once some ecological systems are consumed, they may be

difficult or impossible to regain.

Discounting also raises questions of how much

reliance can be placed on technological solutions

to current and future environmental problems.

Advocates of high discount rates sometimes argue

that technological progress will find solutions to

future environmental harms. Those who advocate

low rates do not wish to depend on future progress

to mitigate harms that could be prevented today.

I Conclusions

These issues do not exhaust the list of situations

where disputes can be based on underlying assumptions and values, but they provide a starting

point. Each of these issues can affect the outcome

of a environmental cost study, and how each issue

is resolved depends largely on an analyst underlying assumptions. The “right” assumptions for

an environmental cost study are not clear, and current debates over environmental cost studies are

doing little to resolve them. Instead, discussions

of the technical details of individual studies often

hide disagreements over basic assumptions.

FRAMEWORKS

The discussion above indicates the wide variety of

issues that affect environmental cost studies and

the diversity of assumptions that affect how analysts resolve those issues. The assumptions occur

at many different levels of analysis. One way of

understanding these assumptions is to divide them

into three levels: first, the fundamental goals the

study is intended to support; second, the general

strategies used to frame the study; and third, the

specific methods the study uses to make its estimates.

Table 4-3 provides examples of these frameworks. The positions outlined are extreme, and

rarely adopted in unalloyed form, but they help illustrate different frameworks, the connections

within individual frameworks, and the broad

spectrum of possible assumptions that underlie

environmental cost studies.

| Goals

Analysis of environmental cost issues does not

take place in a vacuum. Nearly every analysis begins with a particular view of problems not fully

addressed by current policies. For example, economic analysis of environmental questions often

begins by examining why current markets fail to

control environmental effects. Analysis of the

same issues by environmental groups often begins

by noting emerging global environmental threats

that are linked to energy use.

These problems often are translated into an implicit or explicit policy goal. Economic efficiency

is nearly always the presumed goal of economic

analyses of environmental cost problems. Public

protection is a traditional goal of much existing

environmental regulation. Sustainability is quick48Here 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 goal

What is the source of Role of environmental cost What are environmental

environmental problems? studies in energy policy costs?

Economic

efficiency

Protection of

public health

and safety

Ecological

sustainability

Equity

Markets do not capture all the

important information for energy

decisionmaking by producers

and consumers. Existing

regulations are inefficient.

Energy technologies have

created risks to the public that

are preventable.

Existing energy use is not

ecologically sustainable

because individual consumers

act according to their own

narrow self-interest, instead of

considering the impacts of their

actions on the whole

ecosystem.

Disparities in political and

economic power exist between

different members of society.

Powerful individuals attempt to

push adverse effects onto

others while retaining the

positive effects for themselves.

Quantify the necessary

corrections to energy markets

so that all important

decisionmaking information can

be contained in prices.

Compare the total costs and

benefits of a specific policy.

Indicate where government

action is necessary to minimize

the health and safety impacts of

energy production.

Indicate where government

action is necessary to make

energy production sustainable.

Indicate situations where

inequities occur and quantify

the damages in order to

facilitate compensation.

Externalities—

environmental effects that

are not reflected in current

energy prices and that are

economically quantifiable.

Unintended side effects of

energy use.

Effects on global or local

ecosystems that are not

apparent or are not of

interest to individual

consumers.

Adverse effects of energy

use that are not borne by

those who benefit.

Methods

Valuation

approach What is value?

Consumers acting

in markets.

Legislators and

regulators acting

in political

systems.

Scientists acting

in scientific

settings.

Legislators,

regulators,

judges, and juries

acting in political

and legal

systems.

An amount that

consumers are

willing to pay for an

environmental good

or service.

One measure of the

importance of an

environmental

effect.

An indicator that

can be used to

communicate

ecological

importance.

An amount that

provides just

compensation and

that punishes unjust

actions.

SOURCE: Office of Technology Assessment, 1994.
64 I Studies of the Environmental Costs of Electricity

ly becoming the predominant goal underlying

many analyses that take an environmental perspective. Equity has recently emerged as a concern about environmental impacts

These policy goals are not mutually exclusive,

and few analysts would explicitly advocate pursuing only one of them. However, single policy

goals are often implicitly assumed without substantial attention to other goals. Such an approach

is understandable because combining several

policy goals is difficult and requires an overarching organization that needs to be explained and defended. Such an activity goes beyond the scope of

most environmental cost studies.

Most existing environmental cost studies fall

primarily within a framework of protecting public

health and safety. The studies are aimed at identifying environmental effects of energy to indicate

where government action is necessary. They

broadly consider all environmental effects of energy, without substantial concern about whether

such effects have already been, in a strict economic sense, internalized by existing regulations.

These studies and their use by state regulatory

commissions have been strongly criticized for

misunderstanding economic concepts. For example, questions have been raised about the use of

control costing, not accounting for currently internalized effects, and using average instead of marginal effects. Partially in response to these

criticisms, the ongoing DOE/EC study falls predominantly within a framework of economic efficiency. The study’s authors take pains to explain

the specifics of this policy goal, and they point out

how current studies fail to inform such a policy

goal adequately.

Few, if any, studies have approached environmental issues from a framework of equity. However, environmental equity has been the focus of

intense attention recently, and casual readers of

environmental cost studies often assume that the

studies are primarily concerned with equity. In

addition, equity is of great concern to federal

policymakers, particularly Congress.

I Strategies and Methods

Policy goals often translate fairly directly into

other important assumptions in environmental

cost studies. Some of these assumptions concern

a study’s strategy (i.e., what role is envisioned for

the study in energy policy). Other assumptions

concern methodology (i.e., how the study assigns

value to environmental effects).

Frameworks based on economic efficiency can

appear to offer a complete basis for policy, providing an extremely clear, although limited, role for

policymakers. Economics provides a theoretical

description of environmental problems (market

failures), a quantitative strategy for informing

policy (estimating externalities), methods for carrying out that strategy (e.g., contingent valuation),

and a set of policy tools (e.g., pollution taxes).

Critics of exclusively economic approaches argue, however, that economics is far from a complete system. Other important goals such as

sustainability and equity are not directly addressed by economics, and they can be difficult to

integrate with economic goals.

Most proponents of economic approaches argue for a more moderate position—that economic

information supports the creation of policies that

are economically efficient, and that also achieve

other ends such as equity or sustainability. Such a

view, however, presupposes that environmental

cost studies provide relatively technical and unbiased information to policymakers-casting

policymakers as the arbiters and integrators of information. However, as indicated above, environmental cost studies themselves often embody,

rather than inform, decisions about assumptions

and values.

In addition, the tendency of some environmental cost studies has been to push the boundaries of

technical analysis outward, attempting to subsume progressively larger set of issues within a

quantitative framework. Such quantitative treatment can be appealing to policy makers faced with

difficult decisions. Because economic efficiency
Chapter4 Assumptions in Environmental Cost Studies 165

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 widegoals and become the de facto basis for policy. ly used on the federal level? How can they be conCareful 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 chapen current and future attempts to use these studies ter.

on the federal level. How are environmental cost
Roles for

Environmental

Cost Studies in

Policymaking 5

T

his chapter discusses the current state and federal policies

that require the evaluation or use of environmental costs,

and it outlines how environmental cost studies can be

made more useful to federal policy makers. It explains

some of the links between environmental cost studies and policy

and some of the difficulties of applying current studies to federal

policymaking. Although current studies are not being used extensively on the federal level, several new studies soon will be released, and there is likely to be increased debate over whether to

consider the findings of these future studies when developing federal policy.l Increased use of environmental cost studies presents

federal policy makers with both pitfalls and opportunities.

CURRENT LAWS AND REGULATIONS

Several policies at the federal and state levels involve explicit

consideration of environmental costs. They demonstrate the variety of approaches to environmental costing and the ways current

studies are used.

| Federal Laws

The federal government incorporates environmental cost concepts into a wide variety of legislation and regulations.2 These include the Energy Policy Act of 1992 (Public Law 102-486,

I

I

167
68 I Studies of the Environmental Costs of Electricity

Concerns about the federal budget deficit and the existing tax structure have prompted close examination of alternative methods of raising revenue, including environmental taxes. Such taxes could

include energy-related policies such as carbon taxes and gasoline taxes, and nonenergy policies such

as charges for municipal solid waste collection, congestion taxes on urban highways, and taxes on

toxic chemical emissions.

Proposals for environmental taxes cite several advantages, First, they offer a source of federal revenue to address the budget deficit. Alternatively, they could be used in a revenue-neutral manner, to

shift away from taxing “goods” (such as income) and toward taxing “bads” (such as pollution). In either

case, the taxes would reduce emissions of the taxed pollutants (such as C02) or reduce consumption

of the taxed goods (such as gasoline).

For example, the Clinton Administration proposed a BTU tax in early 1993. The proposal would have

imposed a base rate of 25.7 cents per million BTUs on coal, natural gas, nuclear power, hydroelectricity, home heating oil, liquefied petroleum gases and imported electricity. An additional tax of 34,2 cents

per million BTUs would have been imposed on gasoline and other refined petroleum products, The

measure 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 environmental sources, in 1992, the federal government collected an estimated $7.6 billion in revenues from

natural resources and environment-related sources (see table below), about half of one percent of the

federal budget, While these federal revenues are not directly related to environmental damage, they do

reflect 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 $) Source

2,8 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 Environmental Quality (Washington, DC: U.S. Government Printing Office, 1993).

Environmental taxes can be an unstable revenue source, however. To the extent that environmental

taxes discourage pollution, they also reduce the revenue that they generate. Unless the tax rate is proportionally increased, the tax receipts will decline. If this effect is relatively mild and temporary, it may

represent more of a start-up problem than a long-term liability of environmental taxes. If, however, it is

feasible 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 1992

Law 101-549, the Pacific Northwest Electric This act requires the Secretary of Energy to develPower 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 dioxtion.
Chapter5 Roles for Environmental Cost Studies in Policymaking 169

ide (C02) and other greenhouse gases. In developing the strategy, the Secretary is directed to “take

into consideration the economic, energy, social,

environmental, and competitive costs and benefits . . . of his choices.”3 Assumptions are explicitly identified as an important component of the

least-cost energy strategy. The act states that” the

Secretary shall include in the least-cost energy

strategy an identification of all of the assumptions

used in developing the strategy and priorities

thereunder, and the reasons for such assumptions.”4

The Clean Air Act Amendments of 1990

The 1990 Clean Air Act Amendments (CAAA)

requires that the Environmental Protection

Agency (EPA) conduct periodic, comprehensive

analyses of the costs, benefits, and other effects of

the act.5 In considering benefits, the analysis is to

include all economic, public health, and environmental benefits of efforts to comply with provisions of the act.b The amendments specifically

reference quantitative studies of environmental

benefits, noting that in cases where numerical values are assigned to the act’s benefits, a default assumption of a zero value shall not be used, unless

it is supported by specific data. This is intended to

combat the practice of counting only the effects

that can be quantified and assuming that all unquantified effects are unimportant (and thus have

a zero value). EPA is also directed to assess how

the benefits of the act are measured in order to ensure that damage to human health and the environment is accurately measured and taken into

account.

342 USC. tj 13382(@.

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

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

The Pacific Northwest Electric Power

Planning Act of 1980

This act requires that the Northwest Power Planning Council develop a methodology for determining quantifiable environmental costs and

benefits, and apply it to help determine the total

system cost of energy resources.7 The act resulted

in the studies commissioned by the Bonneville

Power Administration (BPA), as well as the Shuman and Cavanagh study, which was supported by

a set of environmental, citizens, labor, and ratepayer groups.

Pending legislation

In addition to the policies discussed above, Congress currently is considering some measures with

a connection to environmental cost analysis. For

example, much of the debate over whether to elevate the EPA to cabinet-level status has concerned

whether the new agency would be required to

perform cost-benefit analysis of proposed regulations. Proponents of a larger role for risk assessment in EPA decisionmaking argue it would help

the agency set priorities and ensure that regulations are cost-effective. Opponents argue that requiring quantitative risk assessments will leave

the agency inflexible and open to endless scientific debate.8 Although environmental cost studies of electricity generation represent only a small

subset of proposed EPA studies, they highlight

some of the issues and controversies likely to surround broader use of cost-benefit analysis for

evaluating 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; environmental costs of energy production refers to those effects that could be avoided through additional pollution controls; environmental benefits of existing 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.
—.

70 I Studies of the Environmental Costs of Electricity

I State Laws and Regulations

Estimates of environmental costs are important 10

a variety of state energy policies. Many state policies require that electric utilities consider environmental costs in some way when they choose

among electricity supply options (see figure 5-1 ).9

Nineteen states require utilities to use quantitative

estimates of environmental costs, including such

measures as adding monetary amounts to prices

based on emissions per ton of pollutant.10 An

additional 10 states and the District of Columbia

require the use of qualitative criteria that attempt

to account for environmental costs.l 1 Qualitative

requirements include such measures as listing various environmental impacts in proposals for new

generating capacity. Three other states have legislative or regulatory activities in process that may

lead to requirements for quantitative or qualitative

consideration of environmental costs. 12

MAKING STUDIES MORE USEFUL IN

FEDERAL POLICYMAKING

When environmental cost studies are used in future federal energy policy, they will be subject 10

continuing disputes over methodology and results. Among these disputes are those over which

methods are preferable in theory and which are

possible in practice. Such disputes are responsible

for some, although not all, of the controversy over

using control cost approaches rather than damage

cost approaches, using average rather than marginal costs, and assessing the degree of internalization (see chapter 4 for an extended discussion).

More importantly, however, disputes will continue because of differing assumptions about

goals, strategies, and methods. As described in

chapter 4, many of the most contentious issues

surrounding current environmental cost studies

can be traced back to differences in underlying assumptions. These assumptions are more likely to

be reflected in, rather than resolved by, current

studies. Consequently, users of environmental

cost studies need to evaluate the studies’ assumptions carefully, lest they unintentionally accept assumptions that do not match their own.

Technical and methodological critiques of social cost studies are important, but they are not the

only important critiques. A study may be technically excellent, yet not meet the needs of Congress

and executive branch agencies. The values and assumptions of any particular study may or may not

overlap with those of particular policy makers. If a

study’s values and assumptions differ radically

from those of the relevant decisionmakers, they

may reject the study on those grounds alone. Such

an action would not be “ignoring science” but

would constitute the legitimate exercise of these

policymakers’ public responsibilities.

I Moving Beyond Evaluation

Consideration of the assumptions that underlie

environmental cost estimates is particularly important for federal policymakers because the assumptions of some current studies may not be

relevant to their needs. Some current studies assume a context of state public utility commissions

(PUCs) and their regulation of utilities. In many

cases, PUCs have funded the studies, or their actions prompted other organizations such as utilities, utility groups, and environmental groups to

fund them.

As a result, existing studies tend to be cast

largely in an evaluative role—that is, they help decisionmakers choose among a fixed set of alterna91nfomatjon 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 approach 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.
Chapter5 Roles for Environmental Cost Studies in Policymaking 171

No requirements

Qualitative requirements

Quantitative requirements

tives for electricity generation. PUCs are largely

concerned with influencing utilities’ decisionmaking processes, and environmental cost studies

have been used to inform PUC efforts. In some

cases, this influence is explicit; some states require utilities to add certain monetary values,

derived from environmental cost studies, to the

estimated production costs of new facilities when

the utilities consider capacity expansion. In other

cases, this influence is implicit; some states require utilities to derive and use their own cost values. In both situations, the emphasis has been on

deriving a total cost figure that is used to choose

among electricity generating technologies.

The characteristics of energy technologies are

substantially more malleable than implied by the

current use of environmental cost studies. Choices

about pollution control technologies, mining and

transportation safety, power plant siting, waste

disposal, and impact mitigation approaches all affect the overall environmental costs of particular

energy sources. All these ways to affect the design

and management of energy technologies are open

to federal (and state) legislators and regulators, although current studies generally are not oriented

toward informing such approaches. Because of

this, existing environmental cost studies may give

a mistaken impression of the opportunities for

minimizing the environmental costs of electricity

generation.

For example, risks to workers in energy-related

industries can contribute to high overall figures
72 I Studies of the Environmental Costs of Electricity

for the environmental cost of electricity generation. These figures may indicate that an energy

source relies on inherently hazardous operations,

but it also may indicate that safety practices in

those industries are not as well developed as in

others. The appropriate policy decision may be

not to reduce use of the energy sources that rely cn

the hazardous industry, but instead to increase efforts to understand and control the industry’s hazards. 13

In the past, the breadth of policy opportunities

has not been lost on federal legislators and regulators. During the past two decades, Congress and

federal regulatory agencies have become active] y

involved in the technological design of electrical.y

generating technologies-particularly by mandating air pollution control equipment and by

funding research in improved technologies. This

approach to federal regulation has alarmed some

observers and is partly responsible for the increased interest in alternatives to command-andcontrol regulations. This, in turn, has increased

interest in economic approaches to environmental

control and in studies of environmental costs.

In many ways, the use of environmental cost

studies is analogous to the use of another type of

environmental assessment that has recently

gained popularity-life-cycle assessment (LCA).

LCAs attempt to quantify the total environmental

damage attributable to a particular product because of its production, use, and disposal. They allow two products to be compared based on their

environmental characteristics. For example,

LCAs have been conducted for disposable and

cloth diapers, paper and styrofoam cups, and plastic and paper shopping bags. After several years of

debate, recent reports have concluded that LCAs

are more useful as a tool for examining and improving design and production processes than

they are as a method of selecting products with superior environmental characteristics. 14 Similarly,

one important role for environmental cost studies

is to suggest how electricity generating technologies can be changed so they are more acceptable to

society, rather than merely to indicate they should

be used to a greater or lesser degree.

| Emphasizing Nonquantitative Results

The impact of the assumptions and values implicit

in different estimates is large enough that isolated

quantitative estimates of environmental cost are

nearly meaningless. Such estimates become

meaningful only in the context of a study’s assumptions and of the environmental effects that

are included and excluded. This conclusion indicates that isolated quantitative estimates of environmental cost studies should not be presented as

the final results of a study. This practice improperly focuses attention on the numerical results, rather than on the study’s assumptions.

Analysts themselves are often aware of the limitations of their methods, but that awareness does

not always affect how studies are reported and

used. For example, most environmental cost studies to date have emphasized the tentative nature of

their own quantitative estimates, the classes of effects they did not consider, and the importance of

additional research. After the studies are published, however, their results are often stripped of

this important context and merely portrayed in numerical form.

Environmental cost studies often focus on what

appears to be the “bottom line’ ’—the monetary

value of environmental effects. In many cases, this

is the most speculative and controversial aspect of

the study, and effects that are not monetized are

often ignored. In contrast, focusing on the earlier

components of the study (e.g., the emissions and

impacts stages) would emphasize aspects that are

most amenable to scientific and technical resolution.

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 (Washington, DC: Government Printing OffIce, September 1992).
Chapter5 Roles for Environmental Cost Studies in Policymaking 173

This does not imply that monetization is a fundamentally flawed enterprise. However, by its

very nature, monetization allows results of environmental cost studies to be reported in a highly

aggregated form. This encourages use of results

without full understanding of the assumptions and

values that underlie them. Placing greater emphasis on reporting results of earlier phases of the

analysis (e.g., emissions and impacts assessments), and on clearly explaining the assumptions

and values that underlie estimates of monetary

damages, would help make the studies more valuable for use in federal policymaking.

| Informing Legislative Decisionmaking

A focus on disaggregated results and on explaining assumptions and values is important for reasons beyond mere accurate reporting or analytical

convenience. Decisions about values are not the

province of technical analysis. Instead, they belong in a public arena to be debated and decided

by citizens and their publicly elected officials.

Only when quantitative analyses clearly identify

their underlying assumptions and values can they

inform and enlighten public debate.

If the assumptions and embedded values of environmental cost studies are explained carefully,

and if summary results present both quantitative

and qualitative aspects, they can be useful for legislative purposes. Quantitative aspects include not

only final environmental cost estimates, but also

disaggregated results showing the relative importance of various factors to the final estimate, sensitivity analyses showing how the results vary when

important inputs are varied, and an analysis of the

uncertainty associated with important quantitative values. Qualitative aspects include identifying emissions that account for the majority of the

impacts in specific impact categories, identifying

alternative assumptions that will substantially alter the quantitative results, and identifying how

the results compare with other similar studies.

Clearly, this approach to analyzing and presenting

environmental cost estimates poses a substantial

challenge. However, without such an approach,

environmental cost studies may prove to be of

little use to policymakers.
Index

A

Air emissions

Chernick and Caverhill study, 26

Tellus Institute study, 23-24,26,42

Alachlor risks, 48

Assumptions

average effects versus marginal effects, 55-57

damage costs versus control costs, 52-55

discounting, 60-62

federal policymaking and, 46,70

frameworks of, 62-65

goals, 62,64

influence on studies, 45

internalization, 57-59

managing uncertainty, 59-60

methods, 64-65

monetization, 47, 49, 50-52

other studies on values and assumptions, 48

quantification, 47,49-50,51-52

strategies, 64-65

Australia study, 19-20

Average vs. marginal effects, 55-57

B

Bernow, Stephen, 23

Biewald, Bruce, 23

Biosystems Analysis, 29

Bonneville Power Administration study

contingent valuation, 39

damage cost methods, 52-53

discount rates, 61

hedonic valuation, 38-39

history and quantitative results summary, 28-30

interstudy comparisons, 32, 36

market valuation, 38

Boston Gas Co., 15,26

BPA study. See Bonneville Power Administration

study

c

CAAA. See Clean Air Act Amendments of 1990

California emission standards, 26

California Energy Commission study, 19-20

Cavanagh, Ralph, 30

Caverhill, Emily, 26

Chernick, Paul, 26

Chernick and Caverhill study

categorization of effects, 20

control cost methods, 52

generation technology, 20-21

history and quantitative results summary, 26

interstudy comparisons, 33

Clean Air Act, 48,53,58

Clean Air Act Amendments of 1990,6,68,69

Clinton administration, 68

Commission of the European Communities, 21-22,

26. See also DOE/EC study

Comparison of studies. See Study comparisons

Computer model

New York State study, 22

Congress. See Federal policymaking

Congressional Research Service, 48

Contingent valuation

criticisms, 41

definition, 4,37

non-use values and, 39, 40

purpose, 39,41

Control cost methods

critiques, 53-54

damage cost methods comparison, 52-55

definition, 4

impacts, 54

supporters of, 43

Tellus Institute study, 24-26

underlying assumptions, 54-55

use in current cost studies, 38, 42

Criteria used for selected studies

comprehensiveness, 13

influence, 13

methodological discussion, 15

CRS. See Congressional Research Service

CV. See Contingent valuation

I 75
76 Studies of the Environmental Costs of Electricity

D

Damage cost methods

control cost methods comparison, 52-55

DOE/EC study, 22

supporters of,-

43

Damage evaluation, 11. See also Stages of

environmental cost studies

Department of Energy/Commission of the European

Communities. See DOE/EC study

Discounting

critiques, 61

impacts, 61

purpose, 60-61

underlying assumptions, 62

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

Energy

DOE/EC study. See also Commission of the

European Communities; U.S. Department of

Energy

advances over older studies, 7

contingent valuation, 39

damage cost methods, 52-53

focus on specific sites, 56

fundamental goals, 64

history and quantitative results summary, 21-22

internalization, 57

E

EC. See Commission of the European Communities;

DOE/EC study

ECO Northwest, 29

Ecological systems, 11

Electric Power Research Institute, 22

Emissions identification, 10-11. See also Stages of

environmental cost studies

Empire State Electric Energy Research Corporation,

22

Energy Policy Act of 1992,6,67,68-69

Environmental effects. See also Stages of

environmental cost studies

average effects versus marginal effects, 55-57

Environmental Protection Agency, 6,69

EPA. See Environmental Protection Agency

EPRI See Electric Power Research Institute

ESEERCO. See Empire State Electric Energy

Research Corporation

Externalities. See also Internalization

economic theory of, 14-15

as fourth stage of environmental effects, 13

F

Federal laws, 6,67-69. See also specific laws

Federal policymaking

assumptions and, 46

emphasis on nonquantitative results, 7,72-73

environmental costs and federal revenue, 68

federal laws, 6,67-69

informing legislative decisionmaking, 7-8

mismatch of state and federal goals, 6-7

pending legislation, 69

roles for environmental cost studies in, 67-73

usefulness of disaggregated results, 7,73

Federal Republic of Germany

Hohmeyer study, 26-27

Fossil fuels

Hohmeyer’s study, 20

Pace study, 23

study differences, 15

Frameworks of assumptions

fundamental goals, 62,64

methods, 64-65

strategies, 64-65

Fraunhofer-Institute for Systems and Innovation

Research, 26

H

Health impacts

Hohmeyer study, 28

Shuman and Cavanagh study, 30

Hedonic valuation, 4,37,38-39

Hohmeyer, Olav, 26

Hohmeyer study

categorization of effects, 20

control cost methods, 52

history and quantitative results summary, 26-28

interstudy comparisons, 36

mitigation cost valuation, 43

monetization of effects, 49

technology specificity, 20-21

I

Impacts. See also Stages of environmental cost

studies

average versus marginal effects, 56-57

control cost methods, 54

discount rates, 61

emissions and, 13,57

evaluation of, 11

identification of, 11

internalization and, 58

monetary damages and, 13

monetization, 51

quantification, 51

uncertainty, 60

Industrial Economics, Inc., 22

Internalization

critiques, 57-58
Index 177

impacts, 58

underlying assumptions, 58-59

L

LCA. See Life-cycle assessment

Legislation. See also Federal laws; State laws and

regulations

pending legislation, 69

Life-cycle assessment, 72

Location specificity, 21,56

M

Marginal effects

average effects comparison, 55-57

Marine oil spills

Chernick and Caverhill study, 26

Market valuation, 4,37,38

Marron, Donald, 23

Massachusetts Department of Public Utilities, 26

Minnesota/Wisconsin study, 19-20

Mitigation cost valuation, 4,38,42-43

Monetization. See also Valuation methods

approach in environmental studies, 47, 49

critics of, 52

federal policymaking and, 73

impacts, 51

policymaking and, 7

underlying assumptions, 51-52

N

Natural Resources Defense Council, 15,30

Nero and Associates, 29

Nevada study, 19-20

New source performance standards, 33

New York Public Service Commission, 22

New York State Department of Public Service, 22

New York State Energy Research and Development

Authority, 22,23

New York State study

advances over older studies, 7

contingent valuation, 39

damage cost methods, 52-53

history and quantitative results summary, 22-23

internalization, 57

software-based model, 22-23, 33

study in progress, 3

uncertainty, 60

Non-use values, 39,40

Northwest Conservation Act Coalition, 15,30

Northwest Power Planning Council, 28,69

NSPS. See New source performance standards

Nuclear power

Pace study, 23

Shuman and Cavanaugh study, 30

0

Oak Ridge National Laboratory, 15,21-22

ORNL. See Oak Ridge National Laboratory

OTA report summary

assumptions in cost studies, 5-6

cost estimate findings, 3

current laws and regulations, 6

decisionmaking factors, 7-8

framework of goals and values, 5-6

monetization, 7

policymaking, 6-8

report in context, 2

state regulatory commissions, 6-7

valuation methods, 3-5

P

Pace study

categorization of effects, 20

contingent valuation, 39

control cost methods, 52

externalities, 58

generation technology, 20-21

hedonic valuation, 38

history and quantitative results summary, 23

interstudy comparisons, 32, 33

market valuation, 38

mitigation cost valuation, 43

monetization of effects, 49

size of study, 15

Pace University Center for Environmental Legal

Studies, 15

Pacific Northwest Electric Power Planning and

Conservation Act of 1980,6,28,68,69

Passive-use values, 40

PLC, Inc., 26

Policy. See Federal policymaking; State laws and

regulations

Public utility commissions, 70-71

PUCs. See Public utility commissions

Purpose of studies. See Structure and purpose of

studies

Q

Qualitative criteria, 70,73

Quantification. See also specific studies

approach in environmental studies, 47, 49

critiques of, 49-50

impacts, 51

policymaking and, 70,73

underlying assumptions, 51-52
78 Studies of the Environmental Costs of Electricity

R

RCG/Hagler, Bailly, Inc., 15,22

Resource Insight, Inc. See PLC, Inc.

Resources for the Future, 21-22,48

Revealed preference methods, 53

RFF. See Resources for the Future

Secretary of Energy, 68-69

s

Shuman, Michael, 30

Shuman and Cavanagh study

control cost methods, 52

discount rate, 61

estimate of highly speculative effects, 50

history and quantitative results summary, 30

interstudy comparisons, 36

size of study, 15

uncertainty, 60

Site specificity, 21,56

Software-based model

New York State study, 22

Sponsors of studies, 15

Stages of environmental cost studies

damage valuation, 11, 13

emissions identification, 10-11, 13

externality as fourth stage, 13, 14-15

impact identification and evaluation, 11, 13

State laws and regulations, 1,6-7,70

Structure and purpose of studies, 10-11, 13

Studies not reviewed

Australia study, 19-20

California Energy Commission study, 19-20

Nevada study, 19-20

types of, 11

Wisconsin/Minnesota study, 19-20

Study comparisons

categorization differences, 32-33

cost estimate uncertainty, 36

cost estimate variation, 33, 36

domination of one effect category, 33

independence of estimates, 31-32

Study differences

analysts and sponsors, 15

categorization of effects, 20

energy sources, 15

environmental effects, 15, 20

location specificity, 21

methods, 15

size and complexity, 15

technology specificity, 20-21

Study similarities

comprehensiveness, 13

influence, 13

methodological discussion, 15

Study structure and purpose, 10-11, 13

Summary of report. See OTA report summary

Technology specificity, 20-21

T

Tellus study

categorization of effects, 20

control cost methods, 52

control cost valuation, 24-26, 42

history and quantitative results summary, 23-26

interstudy comparisons, 33

u

Uncertainty

critiques, 59-60

impacts, 60

underlying assumptions, 60

Underlying assumptions. See Assumptions

U.S. Department of Energy, 21,23. See also

DOE/EC study

Use values, 40

v

Valuation methods. See also Control cost methods;

Damage cost methods

contingent valuation, 4, 37, 39,41-42

control cost valuation, 42

conversion of impacts to damages, 13

determination of, 5

disputes over methods, 4-5

hedonic valuation, 4,37,38-39

market valuation, 4, 37, 38

mitigation cost valuation, 4, 38,42-43

process, 3

related issues, 36

w

Wisconsin/Minnesota study, 19-20

* U.S. GOVERNMENT PRINTING OFFICE: 1994 - 301-804 - 814/27413