A new report from the National Research Council examines and, when possible, estimates “hidden” costs of energy production and use — such as the damage air pollution imposes on human health — that are not reflected in market prices of coal, oil, other energy sources, or the electricity and gasoline produced from them. The report estimates dollar values for several major components of these costs. The damages the committee was able to quantify were an estimated $120 billion in the U.S. in 2005, a number that reflects primarily health damages from air pollution associated with electricity generation and motor vehicle transportation. The figure does not include damages from climate change, harm to ecosystems, effects of some air pollutants such as mercury, and risks to national security, which the report examines but does not monetize.
Requested by Congress, the report assesses what economists call external effects caused by various energy sources over their entire life cycle — for example, not only the pollution generated when gasoline is used to run a car but also the pollution created by extracting and refining oil and transporting fuel to gas stations. Because these effects are not reflected in energy prices, government, businesses and consumers may not realize the full impact of their choices. When such market failures occur, a case can be made for government interventions — such as regulations, taxes or tradable permits — to address these external costs, the report says.
The committee that wrote the report focused on monetizing the damage of major air pollutants — sulfur dioxide, nitrogen oxides, ozone, and particulate matter – on human health, grain crops and timber yields, buildings, and recreation. When possible, it estimated both what the damages were in 2005 (the latest year for which data were available) and what they are likely to be in 2030, assuming current policies continue and new policies already slated for implementation are put in place.
The committee also separately derived a range of values for damages from climate change; the wide range of possibilities for these damages made it impossible to develop precise estimates of cost. However, all model results available to the committee indicate that climate-related damages caused by each ton of CO2 emissions will be far worse in 2030 than now; even if the total amount of annual emissions remains steady, the damages caused by each ton would increase 50 percent to 80 percent. Read Summary of Report.