nerability to accidents and possible attack, oil-supply disruptions, and other national security issues. We concluded as follows:

  • The nation’s electric grid is subject to periodic failures because of transmission congestion and the lack of adequate reserve capacity. These failures are considered an external effect, as individual consumers of electricity do not take into account the impact of their consumption on aggregate load. The associated and possibly significant damages of grid failure underscore the importance of carefully analyzing the costs and benefits of investing in a modernized grid—one that takes advantage of new smart technology and that is better able to handle intermittent renewable-power sources.

  • The external costs of accidents at energy facilities are largely taken into account by their owners and, at least in the case of our nation’s oil and gas transmission networks, are of negligible magnitude per barrel of oil or thousand cubic feet of gas shipped.

  • Because the United States is such a large consumer of oil, policies to reduce domestic demand can also reduce the world oil price, thereby benefiting the nation through lower prices on the remaining oil it imports. Government action may thus be a desirable countervailing force to monopoly or cartel-producer power. However, the committee does not consider this influence of a large single buyer (known as monopsony power) to be a benefit that is external to the market price of oil. It was therefore deemed to be outside the scope of this report.

  • Although sharp and unexpected increases in oil prices adversely affect the U.S. economy, the macroeconomic disruptions they cause do not fall into the category of external effects and damages. Estimates in the literature of the macroeconomic costs of disruptions and adjustments range from $2 to $8 per barrel.

  • Dependence on imported oil has well-recognized implications for foreign policy, and although we find that some of the effects can be viewed as external costs, it is currently impossible to quantify them. For example, the role of the military in safeguarding foreign supplies of oil is often identified as a relevant factor. However, the energy-related reasons for a military presence in certain areas of the world cannot readily be disentangled from the nonenergy-related reasons. Moreover, much of the military cost is likely to be fixed in nature. For example, even a 20% reduction in oil consumption, we believe, would probably have little impact on the strategic positioning of U.S. military forces throughout the world.

  • Nuclear waste raises important security issues and poses tough policy challenges. The extent to which associated external effects exist is hard to assess, and even when identified they are very difficult to quantify. Thus, although we do not present numerical values in this report, we recognize the importance of studying these issues further.



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