The External Health & Environmental

Costs of Electricity Generation in

Minnesota

February 19, 2014

Dr. Stephen Polasky | Prof. of Applied Economics

University of Minnesota

Pg. 2

Energy Efficiency Quality Assurance:

Past, Present, and Future

Thursday, March 6th 11:00 – 12:00 CST Dave Bohac | Director of Research Carl Nelson | Manager of Residential Programs Isaac Smith | Program Assistant

• Past experience that have inform quality assurance best practices

• Innovations are currently being used in the field • Future needs and opportunities for implementation

Pg. 3

Meeting Utility Resource Needs with Solar:

The Merits of the Aurora Solar Project

Wednesday, March 19th 11:00 – 12:00 CST Betsy Engelking | Geranimo Energy Vice President Nathan Franzen | Geranimo Director of Solar

• Introduction to the Aurora Solar Project that has been selected in MN

• The design and technical merits of the proposed project

Pg. 4

The External Health and Environmental Costs

of Electricity Generation in Minnesota

Dr. Stephen Polasky

Applied Economics Professor

University of Minnesota

Question & Answer

Webinar Link:

http://www.mncee.org/Innovation-Exchange/Resource-Center/

HEALTH & ENVIRONMENTAL COSTS OF ELECTRICITY GENERATION IN MINNESOTA

Andrew L. Goodkind and Stephen Polasky

Introduction

• Electricity generation contributes to air pollution with serious health and environmental impacts

• Emissions include

– Criteria air pollutants (SO2, NOx, VOCs…)

– Greenhouse gases (CO2)

• Impacts

– Human health

– Local/regional environmental effects

– Climate change

Introduction

• Why estimate the monetary value of health and environmental impacts?

• Information for policy and planning

– Resource planning: comparison of alternative energy sources

– Resource use efficiency

Introduction

• Why estimate these values now?

• Minnesota Public Utility Commission uses estimates from the 1990s

– Out-of-date

– Not reflective of full costs

Bottom-line

• Total cost: $2.454 billion annually

– Central estimate of dollar value of damages to human health and the environment from electricity generation in Minnesota

– $877 million from criteria air pollutants

– $1.577 billion from GHG emissions

• 94% of costs come from coal-fired power plants (58% of electricity from coal)

Bottom-line

• Minnesota Public Utility Commission estimates of costs (“old estimate”)

– Total cost between $58 and $257 million annually

• Main differences

– Old estimates: no damages from criteria air pollutants (“these are regulated”)

– Old estimates: very low value for damages from greenhouse gas emissions

Results in context

• Cost estimates have large margin of error

– Central estimate of $2.454 billion annually

– Range of estimates: $1.041 to $3.562 billion

• Initial study not the final word

Results in context

• Partial coverage of impacts

• Included – Health and some environmental impacts from criteria

air pollutants: SO2, NOx, PM2.5, PM10

– Climate change impacts from CO2 and other greenhouse gases

• Not included – Damages from mercury emissions

– Damage from VOCs, ammonia, metals

– Damage to ecosystem services

METHODS TO GENERATE COST ESTIMATES

Cost estimates

• Two important categories of cost

– Health and environmental costs of SO2, NOx, PM2.5, PM10

– Climate change costs from CO2 and other greenhouse gases

Costs of criteria air pollutants

• What are the costs from emissions of SO2, NOx, PM2.5, PM10 from Minnesota electricity generating plants?

• National Academy of Sciences report:

– National Research Council. 2010. Hidden Costs of Energy: Unpriced Consequences of Energy Production and Use

Costs of criteria air pollutants

• Main steps in the analysis:

1. Link changes in emissions to changes in ambient concentrations of air quality

2. Link changes in air quality to various health and environmental impacts (dose-response relationships)

3. Estimates the dollar value of these impacts

Step 1: From emissions to ambient air quality

• Start with data on emissions from electric generating plant sources

Total emissions of pollutants from power plants in Minnesota (2008)

Pollutant Coal Natural

Gas Biomass Oil Other MN All

Emissions

Elect. % of Total

SO2 77,143 80 402 602 25 114,177 68.5%

NOX 61,184 684 1,458 293 180 422,061 15.1%

PM2.5 3,201 29 478 32 15 214,189 1.8%

PM10 8,201 109 553 40 16 794,405 1.1%

NH3 5 213 367 10 0 203,768 0.3%

VOC 583 31 109 4 22 1,210,933 0.1%

Lead 0.91 0.001 0.038 0.006 0.006 22.0 4.3%

Mercury 0.65 0.0001 0.008 0.0004 0.002 1.47 45.1%

.

Source: US EPA, National Emissions Inventory

Step 1: From emissions to ambient air quality

• Air dispersion and air chemistry model (source-receptor model)

• Air Pollution Emissions Experiments and Policy analysis (APEEP) model (Muller and Mendelsohn 2006)

• Calculate change in ambient air quality by location:

– With power plant emissions with versus without to get change in ambient air quality by location

Step 2: From ambient air quality to impacts

• Dose-response relationships

• Major cost comes from premature mortality

– 10 μg m-3 increase in PM2.5 exposure related to 6% increase in premature mortality (Pope et al. 2002)

– Some other studies have found larger impacts: Lepeule et al. 2012 find a 14% increase

• Areas with higher populations exposed have higher impacts (location matters)

Step 2: From ambient air quality to impacts

• Other impacts

– Infant mortality from PM2.5 exposure

– Chronic bronchitis and loss of visibility from PM10

– Chronic asthma, acute-exposure mortality, respiratory admissions, emergency room visits for asthma, and crop and timber loss from ozone

– Chronic obstructive pulmonary disease and ischemic heart disease hospital admissions from NO2

– Asthma and cardiac admissions, and material depreciation from SO2

Step 3: From impacts to dollar value of costs

• Focus on cost of premature mortality

• Value of statistical life (VSL): $6 million (2000 USD)

– Viscusi and Aldy (2003) estimate a mean VSL of $6.2 million (2000 USD), with a 95 percent confidence interval of $2.5 – $15.7 million

• Values for other impacts are small in comparison with mortality costs

Costs of SO2, NOx, PM2.5, PM10

• Combining steps 1 – 3: increased costs from an additional unit of emissions of each pollutant at each location – Marginal damage: increased cost per unit of

additional emissions

• Total damage estimates: – For each pollutant: multiply marginal damage by

the total amount of emissions

– Sum over all pollutant types

Costs of SO2, NOx, PM2.5, PM10

• Range of marginal damage based on location

Pollutant Mean 5th 25th 50th 75th 95th

𝐒𝐎𝟐 5,800 1,800 3,700 5,800 6,900 11,000

𝐍𝐎𝐗 1,600 680 980 1,300 1,800 2,800

𝐏𝐌𝟐.𝟓 9,500 2,600 4,700 7,100 10,000 26,000

𝐏𝐌𝟏𝟎 460 140 240 340 490 1,300

Costs of SO2, NOx, PM2.5, PM10

• NRC (2010): damage from the 406 coal plants in the U.S.

– $62 billion (2007 USD)

– 3.2 cents per kWh

Costs from greenhouse gas emissions

• Cost per unit of greenhouse gas emissions: social cost of carbon (SCC) – Increase in future damages from greater climate

change from an additional ton of CO2 in the atmosphere

– Calculate CO2 equivalents for other greenhouse gases

• Total cost equals social cost of carbon multiplied by total CO2 emissions

• Simpler approach because location does not matter and no complex air chemistry

Total emissions of greenhouse gases from power plants in Minnesota 2006

(Thousand tons CO2e per year)

Pollutant Coal Natural

Gas Oil Other MN total % of total CO2 38,173 1,938 609 578 103,617 39.9%

N2O 91 18 21 58 7,606 2.5%

CH4 7 3 0.3 6 12,897 0.1%

Total GHG 38,270 1,958 630 642 124,120 33.4%

Costs from greenhouse gas emissions

• Interagency Working Group on Social Cost of Carbon 2013 – SCC of $33 per metric ton CO2 eq. (2007 USD)

– Sensitivity analysis: $11, $52 and $90 per metric ton

• Major sources of uncertainty in SCC – Discount rate

– Future emissions of GHG

– Climate sensitivity

– Environmental impacts

– Monetary damages of impacts

COST ESTIMATE RESULTS

Costs per ton of pollutant for urban and rural counties

Pollutant

Urban County Emissions

Median (5th – 95th percentile)

Rural County Emissions

Median (5th – 95th percentile)

SO2 $11,400 ($6,600 – $13,600) $5,100 ($1,900 – $6,500)

NOX $3,300 ($3,000 – $3,400) $2,300 ($1,300 – $2,900)

PM2.5 $18,500 ($7,100 – $30,800) $3,400 ($2,700 – $6,600)

PM10 $1,100 ($400 – $1,600) $200 ($150 – $350)

NH3* $2,400 ($1,400 – $15,800) $900 ($600 – $1,700)

VOC* $1,200 ($400 – $2,200) $230 ($140 – $370)

Total annual costs of emissions in SO2, NOx, PM2.5, PM10 in Minnesota

Source Median 5th Percentile 95th Percentile

Coal $856 $498 $1,042

Natural Gas $3 $2 $6

Oil $7 $4.2 $9

Biomass $9 $5 $14

Other $1 $1 $2

Total $877 $502 $1,072

Total annual costs of greenhouse gas emissions from Minnesota

• Multiply social cost of carbon by total number of CO2 equivalent tons of emissions

Source

Central

$38/ton

Low

$13/ton

High

$60/ton

Catastrophic

$104/ton

Coal $1,454 $498 $2,296 $3,980

Natural Gas $74 $25 $118 $204

Oil $24 $8 $38 $66

Other $24 $8 $39 $67

Total $1,577 $540 $2,490 $4,316

Summary of cost estimates

• Total health and environmental costs: – $2.454 billion

– Range: $1.041 billion to $3.562 billion

• Costs per kWh of electricity: – 4.6 cents/kWh for all sources of electricity

– 6.8 cents/kWh for electricity generated from coal

• External costs are significant – Average cost for households in Minnesota 12

cents/kWh (retail price)

THANK YOU FOR YOUR ATTENTION