When all of the environmental and social costs of different sources of fuel are accounted for, such renewable energy sources as onshore wind farms compare favorably with both older and newer fossil-fuel-based sources. Wikimedia Commons/Aloxe
According to a new study published online last month by the Journal of Environmental Studies and Sciences, building new “clean” energy systems to generate electricity is cheaper than traditional coal-based energy systems.
October 8, 2013—According to a new study, “The social cost of carbon: implications for modernizing our electricity system,” recently published online by the Journal of Environmental Studies and Sciences, electricity generated by renewable sources can be comparable in cost, or even less expensive than, electricity generated by more traditional sources. By recalculating the penalties that ought to be assessed for carbon dioxide emissions—the so-called social cost of carbon—the researchers conclude that the actual cost of electricity generation is cheaper using renewable resources than using traditional coal plants, for example.
The social cost of carbon, known by its acronym of SCC, is “a monetization of the impact, or the damages, from the carbon dioxide that’s been put into the air,” says Chris Hope, Ph.D., a reader in policy modeling and a fellow of Clare Hall at the Judge Business School at the United Kingdom’s University of Cambridge. Hope coauthored the piece with Laurie T. Johnson, Ph.D., and Starla Yeh, both with the National Resources Defense Council, based in Washington, D.C. Johnson is the chief economist at the NRDC’s Climate Center, while Yeh is located in the organization’s Center for Market Innovation.
“If you believe in the polluter pays principle, then the social cost of carbon dioxide is what you would want to charge anybody who emitted a ton of carbon dioxide into the atmosphere,” Hope explains. The SCC method has been in existence for some time; the federal government’s Office of Management and Budget (OMB) guidelines, for example, suggest that in calculating such costs, agencies of the federal government should use ‘market’ discount rates, according to Johnson, who responded to written questions posed by Civil Engineering online. “We disagree with using market rates for intergenerational damages, and therefore [we] re-estimated the SCC using [new] rates.”
The OMB rates translate to $52, $33, and $11 (in 2007 dollars) as today’s SCC of one metric ton of CO2 released into the atmosphere, according to the report. These numbers are based on discount rates of 2.5, 3, and 5, percent, respectively, which assume a continually improving economy when comparing the value of today’s dollars to those of the future. But these percentages are too steep, the authors of the study argue, in part because off the uncertainty of the future of America’s economy. According to the study, more reasonable discount rates of 1, 1.5, and 2 percent should be used, and these create SCC charges of $266, $122, and $62 per ton of emitted CO2.
“We estimated the SCC with what economists call ‘intergenerational’ discount rates—rates that count damages to our children and grandchildren more equally to how we value those same damages to ourselves today,” said Johnson.
According to the report, this method enables the authors to “calculate, on a cents-per-kilowatt-hour basis, the environmental cost of CO2 emissions from fossil fuel generation and add it to production costs.” They are then able to compare the total social cost—generational plus environmental—of electricity generated by newly constructed fossil fuel-based facilities versus newly constructed “cleaner” technologies. The authors define “cleaner” technologies as those that either release little to no carbon dioxide into the atmosphere—wind and photovoltaic systems, for example—or that do release some CO2 but use carbon capture sequestration to prevent it from entering the atmosphere. Both coal and natural gas can be produced in ways that capture carbon. (See, for example, “Saline Aquifers Could Hold CO2 for a Century,” in Civil Engineering online.)
The authors’ paper compared the costs (in cents/kWh using 2007 dollars) of six new electricity-generating systems: coal, natural gas, photovoltaic, and onshore wind, and both coal and natural gas plants with integrated carbon-capture systems.
The paper lays out a comparison of the costs associated with such new plants, adjusted to account for discount rates at 1, 1.5, and 2 percent versus 2.5, 3, and 5 percent. They found that the total cost of new coal was 4 times more expensive than that of new onshore wind farms at a discount rate of 1 percent, costing $0.32 per kWh to wind’s $0.08. Electricity generated by new coal plants still cost more than wind at the government’s highest discount rate, 5 percent, coming in at $0.11 versus wind’s $0.08 per kWh. Economically speaking, new onshore wind systems offer the best return on investment.
The authors are quick to point out that even if one does not agree with their lower discounts rates, utilizing the government’s accepted discount rates to compare the costs of new electrical generation plants also shows that three of the five cleaner technologies are more efficient than new coal. These are conventional natural gas, natural gas with carbon capture systems, and wind.
In addition to looking at the costs associated with modern electricity-generating facilities across the board, the study also compared the costs of existing coal-based electricity-generating plants with cleaner, modern technologies. (An average of all existing coal plants in 2010 was used for the analysis, according to the study authors).
Penalizing emissions at the government’s highest discount rate, 5 percent (the equivalent of a mere $11/ton of CO2) made existing coal plants the cheapest energy source per KWh: $0.06/kWh versus $0.08/kWh for new onshore wind. But when using the lowest discount rate offered by the study, which equates to a $266/ton of CO2 penalty being assessed, the numbers became starkly different: onshore wind maintained its cost of $0.08/kWh while the cost of electricity generation using existing coal plants jumped to $0.34/kWh.
The polluter pays principle, as Hope refers to it, is a foundational element of the study. As the authors point out in the paper, “the conclusions presented here hinge to a large degree on the extent to which damages to future generations are valued similarly to people alive today and the near future.”
It is the authors’ hope that their direct comparison of the costs associated with traditional fossil fuels and newer renewable energy systems will help the U.S. government rethink its policies on electricity generation.