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Study finds coal costly to U.S. economy

CHARLESTON, W.Va. -- Air pollution from coal-fired power plants costs the U.S. more in health damage than those plants contribute to the American economy, according to a new study in a respected economics journal.

 

Coal plants produce the largest "gross external damages" -- $53 billion annually -- of any of the industries examined in the new study published in the latest issue of The American Economic Review.

"What we're saying isn't that we need to shut down all of the power plants," said Robert Mendelsohn, an economist at the Yale University School of Forestry and Environmental Studies. "We're actually recommending that they do more abatement of the pollution from the plants. That will lower the damages that these plants cause."

Mendelsohn co-authored the study with economists Nicholas Muller of Middlebury College and William Nordhaus of Yale.

Their paper was aimed at helping to develop a better system of accounting for pollution costs to the economy, a tool that would benefit policymakers in a variety of areas from energy development to environmental regulation.

"Given the size and distribution of damages found in this study, the development by national statistical agencies of a full set of environmental accounts embedded in the national economic accounts is clearly warranted," the paper concludes. "While private scholars can make provisional estimates of the present kind, a full set of accounts needs the full-time staff, professional expertise, and access to proprietary source data that only a government agency possesses."

The damages included in the study were only those generated by the six major air pollutants: sulfur dioxide, nitrogen oxides, volatile organic compounds, ammonia, fine particulate matter and coarse particulate matter. The value-added figures in the study are the value of the electricity produced by power plants, minus the economic inputs, such as coal and employee wages. The resulting figure amounts to the power plant's contributions to gross national product.

According to the study, the gross external damages (GED) of coal-fired power plants cost about twice the annual value added to the economy by those facilities.

"Coal plants are responsible for more than one-fourth of the GED from the entire U.S. economy," says the study. "The damages attributed to this industry are larger than the combined GED due to the three next most polluting industries: Crop production, $15 billion/year, livestock production, $15 billion/year, and construction of roadways and bridges, $13 billion/year."

If the potential costs of carbon dioxide pollution were included "the damages caused by oil- and coal-fired power plants are between 30 and 40 percent higher," the study said.

"Although the damages from CO2 are large, they are not as large as GED," the study said. "For the case of coal-fired power plants, CO2 causes an additional $15 billion in damages, which is relatively small compared to the GED of $53 billion."

The study said that the high ratio of costs to value-added benefits for coal plants "stems primarily from inefficiently high levels of emissions, as well as electricity prices that do not reflect social costs." But the authors said it's also possible that value-added data for various industries do not fully account for the society benefits of those industries.

Study authors also cautioned that their estimates "are accounting measures and not measures of economic welfare.

"The economy has many existing distortions other than those from air pollution -- such as taxes, distortions from market power, and other externalities -- and existing accounts do not attempt to incorporate those," the study said.

The authors also said that, although damages exceed value added for some industries, "this does not necessarily imply that these industries should be shut down.

"On a formal level, it signifies that a one-unit increase in output of that industry has additional social costs that are higher than the incremental revenues," the study said. "At an intuitive level, it indicates that the regulated levels of emissions from the industry are too high."

Reach Ken Ward Jr. at kward@wvgazette.com or 304-348-1702.


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