Electricity at the lowest societal cost: holistic optimization by EMERGE

Dear Climate CoLab Energy solutions for Latin America contest judges: Thank you, your comment poses a very good point. The electricity market could conceivably evolve toward the mix of energy resources that minimize the societal cost of electricity if external environmental and health costs were internalized by electricity producers. This is controversial, especially because these external costs can be larger than retail costs. For example, the average retail cost per kWh in the U.S. in 2014 was $0.102. Machol et al. (2013) find that the average health impact cost per kWh of coal generated electricity is $0.32, which is over 3x the retail cost [5]. Additionally, it is difficult to allocate external health and environmental costs because they are not evenly distributed and happen over long time horizons. Yet, because they will be incurred by society in one way or another, government should align policy in the private electricity sector to reduce these costs. In electricity markets that are fully government owned, we recommend that government utilities should strive to provide electricity at the lowest societal cost. This requires accounting for external health and environmental costs in investment analysis. The EMERGE tool provides a way for utilities to quantify and monetize external health and environmental costs. The approach we recommend for fully government owned electricity markets is that utilities set a goal of providing electricity at the lowest societal cost and move towards the mix of energy sources that minimizes societal cost as demand increases and existing infrastructure depreciates. Privately owned utilities companies operate within constraints of available technology and maximizing return to share holders. However, the external costs of their generation are incurred by society in the future. For example, individuals living in areas with polluted air typically incur greater respiratory and cardiovascular disease and health costs. The costs are either paid by the individual, or by society in the form government funded health plans. Environmental costs are incurred in similar ways. The approach we recommend for partially or fully privatized electricity markets, which is the majority of Latin America, is to develop policy that sets the optimal mix of energy sources as a regulation the industry must meet. Benefits include: *Minimizing climate change and air pollution impacts *Immediately securing a long term stable market for renewables *Reducing health and environmental burdens that unevenly affect people living in poverty *Improving universal energy access, economic development, gender equality *Global leadership on climate change Setting an optimal mix of energy sources as a standard or regulation is politically reasonable and responsible. It's a way of optimizing current and upcoming goals such as Renewable Portfolio Standards (RPS) in the United States, or the Intended Nationally Determined Contributions (INDC) that countries will be announcing at the U.N. Framework Convention on Climate Change (UNFCCC) in Paris this December. A policy of this nature, designed for maximum societal benefit, will mostly likely recieve criticism from (most likely fossil fuel) organizations who stand to lose profit under this type of policy. Fossil fuel businesses generate huge revenues, which will be used to fight a policy that threatens their profitability. This will be hard to overcome, yet the climate change costs (Akerman, 2014, The Cost of Climate Change) and air pollution costs (Machol, 2013, Economic value of U.S. fossil fuel electricity health impacts) of fossil fuel use are projected to be much greater than fossil fuel revenues [5,6]. Another criticism that could arise is the uncertainty around what the optimal mix is. To address this valid concern, the field’s leading experts should determine the optimal mix of energy sources for an electricity grid. While tools using reduced-form equations can produce quick estimates, results should be confirmed with sophisticated and detailed electricity dispatch, atmospheric dispersion, and human exposure mapping tools to know with certainty that the energy mix will minimize the societal cost of electricity. A final criticism of a policy to implement an optimal mix of electricity sources to provide electricity at the lowest societal cost is that it would be too expensive. In a 2014 paper published in Energy, Stanford Professor Mark Jacobson and colleagues show that an all wind, water and sunlight (WWS) scenario for repowering California would produce 220,000 more 40-year jobs created than lost ($11.3 billion/yr benefit), eliminate $103 billion/yr in state air-pollution related costs, and avoid $45.1 billion/yr in climate change costs compared to a conventional business as usual scenario. Additionally, Jacobson shows that 2030 California electricity costs under a WWS scenario will be $0.053 - $0.072/kWh, while conventional costs would be $0.157 - $0.163 without externalities, and $0.207 - $0.220 with externalities [7]. Without bold and effective action, climate change caused by anthropogenic emissions will continue to increase, possibly to a state beyond human’s ability to restore it to equilibrium. It’s clear that the social and economic benefit of a policy to provide electricity at the lowest societal cost is possible and in humanity’s best interest. While certain businesses will suffer, we must consider and act based on what is best and just for current and future generations.