We Pay Way Too Little for Energy Once Everything Is Added Up

Filling up at the pump today costs less than at any time since 2009, thanks to the Midwest’s shale oil boom as well as shrinking oil demand worldwide.

But the real cost of fueling our vehicles, or switching on the lights in our homes, is nowhere near what we’re paying out of our pockets. That’s because those prices and rates don’t account for the damaging effects those fuels are having on our health, the environment, and the climate.

That lack of information leads to under-informed decisions about energy, transportation, and other important issues, according to Duke University professor Drew Shindell. He has developed a model, described in an article published in the journal Climatic Change in February, for adding up these costs.

If all these external factors were accounted for, the price of auto fuels would rise by $3.80 a gallon, according to Shindell’s model. The average price of gasoline in the U.S. would nearly double, from $3.07 to $6.25 a gallon, while diesel would skyrocket to $7.72 a gallon. That makes California’s $0.15 to $0.75 emissions-based gas tax seem trivial.

“We think we know what the prices of fossil fuels are, but their impacts on climate and human health are much larger than previously realized,” Shindell said in a press release.

The graph shows the average cost per kilowatt hour of electricity generation in the U.S., and adds what the actual cost would be once environmental damages by fuel type are added in. Damages are inflated to match generation costs. (Graph: Duke Nicholas School of the Environment)

To figure out the costs in dollar terms, Shindell created a model that priced out a broad scope of health, climate, and environmental damages linked to burning fossil fuels, the source of the greenhouse gas pollution that has disrupted the climate.

These damages affect everyone by increasing illnesses and health care costs, lowering crop yields, causing extreme flooding and droughts, and more.

While the government has used similar models to put a social cost on carbon pollution, Shindell factored in the external costs of short-term pollutants such as methane and aerosols as well, along with longer-lasting compounds such as nitrous oxide.

Shindell also examined different social and environmental costs of how we power our energy grid. Damages caused by coal-fired power plants increased the cost of electricity by nearly $0.30 per kilowatt-hour, quadrupling the average current price. Electricity generated by natural gas-fired power plants rose from an average of $0.07 per kilowatt-hour to $0.17 per kilowatt-hour.

Once these adjusted rates are taken into account, renewable energy sources such as solar and wind end up being much more cost effective, because they do little to no harm to the environment or human health compared with burning fossil fuels.

“There is room for ongoing discussion about what the value of atmospheric emissions should be,” Shindell said in the release. “But one thing there should be no debate over is that the current assigned price of zero is not the right value.”