KANSAS CORPORATION COMMISSION Externalities in Benefit Cost Tests.

KANSAS CORPORATION COMMISSION

Externalities in Benefit Cost Tests

EXTERNALITIES: DRAWING THE LINES External to What? Changing Notions of Insult/Value Assessing Damages Assigning Costs

Adapted from Koomey and Krause, Lawrence Berkeley Laboratory, 1997

COSTS OF ENERGY

Exploration/EvaluationHarvestingProcessing/RefiningTransport/DistributionStorageConversion MarketingEnd Use

Land/Air/Water UsedEffluentsHuman HealthPhysical

TransformationsSocio-political

Influences (politics, employment)

MARKET SOCIETY

WATER

Source: USGS Circular 1268, March 2004

(LESS) WATER

Source: NOAA

AIR

Source: Brian McLean, U.S. EPA, "Experience with Cap-and-Trade Programs"

CLIMATE

Slide from Jon Anda, President of Environmental Markets Network

HEALTH

Concerns Asthma Stroke Heart Attack Lung Disease Mercury Poisoning (especially in utero) Insect-borne Disease (changing pathogen

vectors)

CDC, ALA, ACS, EPA, Harvard School of Public Health

IT’S NOT ZERO…

WHAT’S THE RIGHT COST?

DOING THE MATH

EC= EF x HR x VED

EC = Externality Cost in ¢/kWhEF = Emission Factor, in lbs/Btu of fuel

consumedHR = Heat Rate of power plant, in Btus/kWhVED = Value of Environmental Damage, in ¢/lb

Physical or Social Consequences of Insults Magnitudes of Consequences Temporal Distribution of Harm Spatial Distribution of Harm Coincidence of Risks and Benefits Scaling (linear or nonlinear) Resistance to Remedy Irreversibility Visibility of Harm

Holdren, John P., "Energy and Human Environment: The Generation and Definition of Environmental Problems," in Goodman, Kristoferson, Hollander: Academic Press.

CONSIDERATIONS

EFFICIENCY AS A RESOURCEEfficiency makes economic sense now, whether or not “externalities” are considered.

Cost of New Electricity Resources

Source: ACEEE 2008, EPRI 2006 & UCS 2008

0

1

2

3

4

5

6

7

8

9

EnergyEfficiency

Biomass PulverizedCoal

Nat. GasCombined

Cycle

Coal IGCC Wind Nuclear

Lev

eliz

ed C

ost

of

Ele

ctri

city

(ce

nts

/kW

h)

w/o carbon w/ $20/ton carbon

EFFICIENCY AS A RESOURCE

Efficiency AS “New” Generation Verified, Permanent Reductions Performance Standards (1% +) Least Cost Resource

IMPLICATIONS FOR BENEFIT/COST Changes in Economy & Society Swift and

Dramatic Flexibility, Not Stasis, Makes Sense Total Resource Cost Test Preferable Ratepayer Impact Measure: Would new

generation withstand this test? Emphasis on Lower Bills

If we choose not to provide incentives for investor-owned utilities that, added to avoided costs, rival ROI for new generation, then we need to look closely at the following map:

Perverse Incentives

STATES WITH PUBLIC BENEFIT FUNDS

Nancy Jackson Executive Director jackson@climateandene

rgy.org (785) 331-8743 www.climateandenergy.o

rg