NEWS ANALYSIS: 'Clean coal' and those pesky negative externalities
The recent series of articles in the New Mexico Independent on "clean coal" power illustrate the differing spatial effects of externalities. In case you missed the series, you can read the articles here and here.
In 'econ-o-speak', an externality is an external cost or benefit that is not reflected in the market price. Electricity generation from coal-powered power plants is a perfect example of a negative externality; the cost of generating electricity does not reflect the health and environmental impacts that arise from using coal. Thus, these costs are ignored by producers.
Because customers don't face the true price of coal-generated electricity, we consume more than is optimal.
The externalities that arise from our consumption have differing spatial impacts. What does that mean? On the global level, increased use of coal results in greater carbon dioxide (CO2) emissions, which contributes to global warming. We are all impacted by this, although developing nations tend to be the worst hit. On the regional level, coal use contributes to acid rain. Where the acid rain occurs is highly dependent on wind and weather patterns. At the local level, coal use can impact communities and ecosytems through increased smog and mercury levels. Thus, when we consume energy from these sources, the external costs can impact very different communities.
Another question: Should proposed Desert Rock coal-fired power plant be considered an example of "clean coal" power?
By using a technology that requires less coal to produce the same amount of electricity Desert Rock's power will be cleaner than currently available sources and will reduce overall emissions. This is certainly a cleaner form of energy than traditional coal-based power generation.
However, if this plant does not replace an older and dirtier plant but instead increases the power-generation capacity needed to respond to greater demand, this argument becomes less relevant. Because of the spatial nature of these externalities, if the retiring plant is not in the same geographic area, these improvements will not be felt at the local or regional level. While CO2 emissions will go down, local pollutants will increase in the new area and decrease in the location of the old plant. How should these trade-offs between communities be weighed?
Coal-based electricity results in a number of different pollutants. What pollutant should the regulatory agency focus on? This is an important decision and has differing impacts on communities. Because the Environmental Protection Agency does not consider CO2 a regulated agent, its regulatory decisions are directed at pollutants that result in local and regional externalities.
By taking steps to reduce sulfur dioxide emissions (beyond that already achieved by more efficient use of coal), Desert Rock can also be considered clean. However, in the local area, there will likely be decreases in air quality. Given that other communities are benefiting from the availability of energy, how should we compensate local communities that experience these externalities?
At the end of the day, Desert Rock illustrates the many challenges of trying to cope with negative externalities. But there are no easy answers. While economics can help identify the problem and suggest efficient ways to address it, there's no way to avoid the philosophical conundrums arising from the differential welfare impacts of externalities.
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