EME 805
Renewable Energy and Non-Market Enterprise

Environmental Impacts Across Scales

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Environmental Impacts Across Scales

Why are the costs of environmental impacts so difficult for markets to include?

As we learned in the first two lessons of this course, markets and market prices are determined by a variety of supply pressures, demand signals, punctuated events, personal preferences, cultural trends, etc. In this lesson, we have learned that the pricing of energy projects requires taking significantly more factors into account than the current market price of energy products, materials, and labor. Historically, markets have not taken into account the costs of environmental and human health impacts in the pricing of either energy or energy projects. Neoclassical market theory, for example, looks only at price signals and assumes transaction and externalities costs are zero. As we know now at this point of the course, approaching the pricing of energy projects based solely on a neoclassical market approach would quickly lead to the bankruptcy of the project because those transaction and externality costs are not zero and may be as or more costly than the initial building the project, such as the decommissioning of some projects.

The costs of an energy project that seem most difficult to capture in terms of market pricing are the costs of environmental impacts, and the reasons for this are multiple. First, environmental impacts usually occur over a duration beyond the consideration of energy markets. Second, environmental impacts can occur at a distance significantly far enough from the energy facility, making it difficult to determine the precise source of the pollutant. For example, a coal fired power plant produces emissions while burning coal that could cause local emissions of carbon black, regional acid rain (SOx emissions), and global warming (CO2 emissions). Other than for the carbon black, however, SOx and CO2 can not be so readily traced back to a single coal fired power plant.