and technological considerations—and exceed the committee’s mandate—would necessarily be involved.

The committee studied energy technologies that constitute the largest portion of the U.S. energy system or that represent energy sources showing substantial increases (>20%) in consumption over the past several years. We evaluated each of these technologies over their entire life cycles—from fuel extraction to energy production, distribution, and use to disposal of waste products—and considered the external effects at each stage.

Estimating the damages associated with external effects was a multistep process, with most steps entailing assumptions and their associated uncertainties. Our method, based on the “damage function approach,” started with estimates of burdens (such as air-pollutant emissions and water-pollutant discharges). Using mathematical models, we then estimated these burdens’ resultant ambient concentrations as well the ensuing exposures. The exposures were then associated with consequent effects, to which we attached monetary values in order to produce damage estimates. One of the ways economists assign monetary values to energy-related adverse effects is to study people’s preferences for reducing those effects. The process of placing monetary values on these impacts is analogous to determining the price people are willing to pay for commercial products. We applied these methods to a year close to the present (2005) for which data were available and also to a future year (2030) to gauge the impacts of possible changes in technology.

A key requisite to applying our methods was determining which policy-relevant effects are truly external, as defined by economists. For example, increased food prices caused by the conversion of agricultural land from food to biofuel production, are not considered to represent an external cost, as they result from (presumably properly functioning) markets. Higher food prices may of course raise important social concerns and may thus be an issue for policy makers, but because they do not constitute an external cost they were not included in the study.

Based on the results of external-cost studies published in the 1990s, we focused especially on air pollution. In particular, we evaluated effects related to emissions of particulate matter (PM), sulfur dioxide (SO2), and oxides of nitrogen (NOx), which form criteria air pollutants.1 We monetized effects of those pollutants on human health, grain crop and timber yields, building materials, recreation, and visibility of outdoor vistas. Health damages, which include premature mortality and morbidity (such as chronic bronchi-

1

Criteria pollutants, also known as “common pollutants” are identified by the U.S. Environmental Protection Agency (EPA), pursuant to the Clean Air Act, as ambient pollutants that come from numerous and diverse sources and that are considered to be harmful to public health and the environment and to cause property damage.



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