to which the market has internalized these risks is difficult if not impossible to measure.
In conclusion, the committee finds the following:
The nation’s electricity-transmission grid is vulnerable to failure at times because of transmission congestion and the lack of adequate reserve capacity. Electricity consumption generates an externality because individual consumers do not take into account the impact their consumption has on aggregate load. Damages from consumption could be significant, and it underscores the importance of investing in a modernized grid that takes advantage of new smart technology and that is better able to handle intermittent renewable power sources.
Externalities from accidents at facilities are largely internalized and—in the case of the oil and gas transmission network—of negligible magnitude per barrel of oil or thousand cubic feet of gas trans-shipped. We find that the monopsony component of the oil consumption premium is not an externality.
Although government policy may be desirable to serve as a countervailing force to monopoly or cartel producer power, it is a separate issue from the focus of this report.
We find that macroeconomic disruptions from oil supply shocks are not an externality. We also find that sharp and unexpected increases in oil prices adversely affect the U.S. economy. Estimates in the literature of the macroeconomic costs of disruption and adjustment range from $2 to $8 per barrel in 2007 dollars.
Dependence on imported oil has implications for foreign policy, and we find that some of the effects can be viewed as an externality. We find, however, that it is impossible to quantify these externalities. The role of the military in safeguarding foreign supplies of oil is often identified as a potential externality. We find it difficult if not impossible to disentangle nonenergy-related reasons for a military presence in certain regions of the world from energy-related reasons. Moreover much of the military cost is likely to be fixed in nature. A 20% reduction in oil consumption, for example, would probably have little impact on the strategic positioning of military forces in the world.
Nuclear waste and proliferation raise important issues and pose difficult policy challenges. The extent to which uninternalized externalities exist is difficult to measure. Moreover, it is very difficult to quantify them. Thus, we do not report numerical values in this report but recognize the importance of studying this issue further.