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KANSAS CORPORATION COMMISSION Externalities in Benefit Cost Tests.

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Presentation on theme: "KANSAS CORPORATION COMMISSION Externalities in Benefit Cost Tests."— Presentation transcript:

1 KANSAS CORPORATION COMMISSION Externalities in Benefit Cost Tests

2 EXTERNALITIES: DRAWING THE LINES External to What? Changing Notions of Insult/Value Assessing Damages Assigning Costs Adapted from Koomey and Krause, Lawrence Berkeley Laboratory, 1997

3 COSTS OF ENERGY Exploration/Evaluation Harvesting Processing/Refining Transport/Distribution Storage Conversion Marketing End Use Land/Air/Water Used Effluents Human Health Physical Transformations Socio-political Influences (politics, employment) MARKETSOCIETY


5 WATER Source: USGS Circular 1268, March 2004


7 AIR Source: Brian McLean, U.S. EPA, "Experience with Cap-and-Trade Programs"

8 CLIMATE Slide from Jon Anda, President of Environmental Markets Network

9 HEALTH Concerns Asthma Stroke Heart Attack Lung Disease Mercury Poisoning (especially in utero) Insect-borne Disease (changing pathogen vectors) CDC, ALA, ACS, EPA, Harvard School of Public Health


11 DOING THE MATH EC= EF x HR x VED EC = Externality Cost in ¢/kWh EF = Emission Factor, in lbs/Btu of fuel consumed HR = Heat Rate of power plant, in Btus/kWh VED = Value of Environmental Damage, in ¢/lb

12 Physical or Social Consequences of Insults Magnitudes of Consequences Temporal Distribution of Harm Spatial Distribution of Harm Coincidence of Risks and Benefits Scaling (linear or nonlinear) Resistance to Remedy Irreversibility Visibility of Harm Holdren, John P., "Energy and Human Environment: The Generation and Definition of Environmental Problems," in Goodman, Kristoferson, Hollander: Academic Press. CONSIDERATIONS

13 EFFICIENCY AS A RESOURCE Efficiency makes economic sense now, whether or not externalities are considered.

14 Cost of New Electricity Resources Source: ACEEE 2008, EPRI 2006 & UCS 2008

15 EFFICIENCY AS A RESOURCE Efficiency AS New Generation Verified, Permanent Reductions Performance Standards (1% +) Least Cost Resource

16 IMPLICATIONS FOR BENEFIT/COST Changes in Economy & Society Swift and Dramatic Flexibility, Not Stasis, Makes Sense Total Resource Cost Test Preferable Ratepayer Impact Measure: Would new generation withstand this test? Emphasis on Lower Bills

17 If we choose not to provide incentives for investor-owned utilities that, added to avoided costs, rival ROI for new generation, then we need to look closely at the following map: Perverse Incentives


19 Nancy Jackson Executive Director (785) 331-8743

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