1. The External Health & Environmental
Costs of Electricity Generation in
Minnesota
February 19, 2014
Dr. Stephen Polasky | Prof. of Applied Economics
University of Minnesota

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. 2

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. 3

4. The External Health and Environmental Costs
of Electricity Generation in Minnesota
Dr. Stephen Polasky
Applied Economics Professor
University of Minnesota
Pg. 4

5. Question & Answer
Webinar Link:
http://www.mncee.org/Innovation-Exchange/Resource-Center/

6. HEALTH & ENVIRONMENTAL COSTS OF
ELECTRICITY GENERATION IN MINNESOTA
Andrew L. Goodkind and Stephen Polasky

7. 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

8. 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

9. Introduction
• Why estimate these values now?
• Minnesota Public Utility Commission uses
estimates from the 1990s
– Out-of-date
– Not reflective of full costs

10. 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)

11. 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

12. 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

13. 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

14. METHODS TO GENERATE COST ESTIMATES

15. 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

16. 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

17. 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

18. Step 1:
From emissions to ambient air quality
• Start with data on emissions from electric
generating plant sources

19. Total emissions of pollutants from
power plants in Minnesota (2008)
Pollutant
SO2
Coal
77,143
Natural
Gas
80
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%
Biomass
402
Oil
602
Source: US EPA, National Emissions Inventory
.
Other
25
MN All Elect. % of
Emissions
Total
114,177
68.5%

20. Step 1:
From emissions to ambient air quality
• Air dispersion and air chemistry model (sourcereceptor 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

21. 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)

22. 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

23. 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

24. 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

25. Costs of SO2, NOx, PM2.5, PM10
• Range of marginal damage based on location
Pollutant
Mean
5th
25th
50th
75th
95th
𝐒𝐎 𝟐
5,800
1,800
3,700
5,800
6,900
11,000
𝐍𝐎 𝐗
1,600
680
980
1,300
1,800
2,800
𝐏𝐌 𝟐.𝟓
9,500
2,600
4,700
7,100
10,000
26,000
𝐏𝐌 𝟏𝟎
460
140
240
340
490
1,300

26. 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

27. 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

28. Total emissions of greenhouse gases from power
plants in Minnesota 2006
(Thousand tons CO2e per year)
Coal
38,173
Natural
Gas
1,938
Oil
609
Other
578
N2O
91
18
21
58
7,606
2.5%
CH4
7
3
0.3
6
12,897
0.1%
38,270
1,958
630
642
124,120
33.4%
Pollutant
CO2
Total GHG
MN total % of total
103,617
39.9%

29. 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

30. COST ESTIMATE RESULTS

31. Costs per ton of pollutant for urban
and rural counties
Urban County Emissions
Median (5th – 95th
percentile)
Rural County Emissions
Median (5th – 95th
percentile)
$11,400 ($6,600 – $13,600)
$5,100 ($1,900 – $6,500)
$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)
Pollutant
SO2
NOX

32. Total annual costs of emissions in SO2,
NOx, PM2.5, PM10 in Minnesota
Source
Median
$856
5th Percentile
$498
95th Percentile
$1,042
Natural Gas
$3
$2
$6
Oil
$7
$4.2
$9
Biomass
$9
$5
$14
Other
$1
$1
$2
$877
$502
$1,072
Coal
Total

33. Total annual costs of greenhouse gas
emissions from Minnesota
• Multiply social cost of carbon by total number
of CO2 equivalent tons of emissions
Central
$38/ton
$1,454
Low
$13/ton
$498
High
$60/ton
$2,296
Catastrophic
$104/ton
$3,980
Natural Gas
$74
$25
$118
$204
Oil
$24
$8
$38
$66
Other
$24
$8
$39
$67
$1,577
$540
$2,490
$4,316
Source
Coal
Total

34. 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)

35. THANK YOU FOR YOUR ATTENTION