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Social Costing of Electricity in Maryland: Effects on Pollution, Investment, and Prices

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  • Karen Palmer
  • Alan Krupnick
  • Hadi Dowlatabadi
  • Stuart Siegel

Abstract

Many state public utility commissions (PUCs) have started to require electric utilities to consider environmental and other externalities in their planning processes. To date social costing has been applied exclusively to the evaluation of new sources of electricity. More comprehensive approaches to social costing would include requiring the utility to dispatch both new and existing generating units according to social cost, or requiring electricity consumers to pay a price for electricity that reflects its full social cost. Using estimates of external costs taken from the literature, this study contrasts the implications of these three different approaches for utility decision making, electricity prices, demand for electricity and other fuels and the net emissions of selected pollutants for a Maryland utility. We find that applying social costing at the investment stage only may lead to reduced investment in new resources, increased use of existing generation resources and higher emissions of key pollutants. Applying social costing to dispatch generally leads to increased levels of investment in clean technologies, lower levels of emissions and only moderate price increases. Also, social costing of electricity generally has a small impact on consumer demand for natural gas.

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Bibliographic Info

Article provided by International Association for Energy Economics in its journal The Energy Journal.

Volume (Year): Volume16 (1995)
Issue (Month): Number 1 ()
Pages: 1-26

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Handle: RePEc:aen:journl:1995v16-01-a01

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Cited by:
  1. Burtraw, Dallas & Toman, Michael, 1997. "The Benefits of Reduced Air Pollutants in the U.S. from Greenhouse Gas Mitigation Policies," Discussion Papers dp-98-01-rev, Resources For the Future.
  2. Freeman III, A. Myrick, 1996. "Estimating the environmental costs of electricity: an overview and review of the issues," Resource and Energy Economics, Elsevier, vol. 18(4), pages 347-362, December.
  3. Parfomak, Paul W., 1997. "Falling generation costs, environmental externalities and the economics of electricity conservation," Energy Policy, Elsevier, vol. 25(10), pages 845-860, August.
  4. Don Fullerton & Shaun P. McDermott & Jonathan P. Caulkins, 1996. "Sulfur Dioxide Compliance of a Regulated Utility," NBER Working Papers 5542, National Bureau of Economic Research, Inc.
  5. Burtraw, Dallas & Krupnick, Alan, 1996. "The Second-Best Use of Social Cost Estimates," Discussion Papers dp-96-29, Resources For the Future.
  6. A. Bigano & S. Proost & J. Van Rompuy, 2000. "Alternative Environmental Regulation Schemes for the Belgian Power Generation Sector," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 16(2), pages 121-160, June.
  7. Dallas Burtraw & Karen Palmer & Alan J. Krupnick, 1997. ""Second-Best" Adjustments to Externality Estimates in Electricity Planning with Competition," Land Economics, University of Wisconsin Press, vol. 73(2), pages 224-239.

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