LESSONS FROM THE HIDDEN COSTS OF ENERGY: UNPRICED CONSEQUENCES OF ENERGY PRODUCTION AND USE1

In 2010, the NRC released a report on the externalities of energy production and use (NRC, 2010). The study was requested by Congress in the Energy Policy Act of 2005, with funds appropriated to the U.S. Treasury in the Consolidated Appropriations Act of 2008. According to Hammitt, the study was conducted under a very tight time schedule, with the first of six committee meetings held on September 11, 2008, and a 473-page report released on October 19, 2009. Hammitt discussed major challenges to completing the statement of task for that report; described key results; and highlighted questions to consider for a study on the cost of food.

Statement of Task

Key components of the statement of the task were to (italics added by Hammitt for emphasis): “define and evaluate key external costs and benefits … associated with the production, distribution and consumption of energy from various selected sources that are not or may not be fully incorporated into the market price of such energy” and to “carry out its task from a U.S. perspective,” but also “consider broader geographic implications of externalities when warranted and feasible.” Among other activities, Congress requested that the committee “identify key externalities … in the categories of human health, environment, security (including quality, abundance, and reliability of energy sources), and infrastructure (such as transportation and waste disposal systems not sufficiently taken into account by producers or consumers)”; “consider externalities associated withenergy imported from foreign sources”; “develop an approach for estimating externalities related to greenhouse gas emissions and climate change”; and “present qualitative and, to the extent practicable, quantitative estimates of externalities and associated uncertainties.” (See Box 5-1 for the NRC, 2010, definition of externality.)

Major Challenges

Hammitt discussed three major challenges faced by the NRC (2010) committee: (1) identifying internalized externalities; (2) quantifying and monetizing all endpoints; and (3) exploring the disproportionate amount of effort focused on already well-understood externalities.

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1 This section summarizes the second presentation of James K. Hammitt.



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