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Hidden Costs of Energy: Unpriced Consequences of Energy Production and Use
In aggregate, the damage estimates presented in this report for various external effects are substantial. Just the damages from external effects the committee was able to quantify add up to more than $120 billion for the year 2005.15 Although large uncertainties are associated with the committee’s estimates, there is little doubt that this aggregate total substantially underestimates the damages, because it does not include many other kinds of damages that could not be quantified for reasons explained in the report, such as damages related to some pollutants, climate change, ecosystems, infrastructure, and security. In many cases, we have identified those omissions, within the chapters of this report, with the hope that they will be evaluated in future studies.
Even if complete, our various damage estimates would not automatically offer a guide to policy. From the perspective of economic efficiency, theory suggests that damages should not be reduced to zero but only to the point where the cost of reducing another ton of emissions (or other type of burden) equals the marginal damages avoided—that is, the degree to which a burden should be reduced depends on its current level and the cost of lowering it. The solution cannot be determined from the amount of damage alone. Economic efficiency, however, is only one of several potentially valid policy goals that need to be considered in managing pollutant emissions and other burdens. For example, even within the same location, there is compelling evidence that some members of the population are more vulnerable than others to a particular external effect.
Although not a comprehensive guide to policy, our analysis does indicate that regulatory actions can significantly affect energy-related damages. For example, the full implementation of the federal diesel-emission rules would result in a sizeable decrease in nonclimate damages from diesel vehicles between 2005 and 2030. Similarly, major initiatives to further reduce other emissions, improve energy efficiency, or shift to a cleaner electricity-generating mix (for example, renewables, natural gas, and nuclear) could substantially reduce the damages of external effects, including those from grid-dependent hybrid and electric vehicles.
It is thus our hope that this information will be useful to government policy makers, even in the earliest stages of research and development on energy technologies, as an understanding of their external effects and damages could help to minimize the technologies’ adverse consequences.
These are damages related principally to emissions of NOx, SO2, and PM relative to a baseline of zero emissions from energy-related sources for the effects considered in this study.