Science, economics, and the hidden health impacts of fossil fuels

by Allyson Green on March 4, 2013

Divest:

  1. to deprive or dispossess especially of property, authority, or title
  2. to undress or strip especially of clothing, ornament, or equipment

Definition #2 above could lend itself to an intriguing blog post, but the definition I’m most curious about is one that Merriam-Webster leaves out: to sell off. As in, to sell off investments. Specifically, fossil fuel investments. You know, oil, gas, coal. Sell off these investments for the sake of public health, climate change, the future of the planet. That’s the new rally cry of university students across the United States as they become more concerned about lack of action to address climate change.

Hold up. Isn’t this supposed to be a science blog?

If this is sounding more like politics and economics, you’re right. It is. It’s also science. For behind sound economic decisions lies scientific evidence. So, what scientific evidence would drive someone to pull investments from an oil company? We could talk about current climate change research, the social and environmental effects of oil extraction in places like Nigeria, or the link between mountaintop removal coal mining and cancer, but since we’re talking economics already, let’s think more broadly and dive right into another one of those economic terms: externalities.

Externality:

  1. the quality or state of being external or externalized
  2.  something that is external
  3. a secondary or unintended consequence

Again, Merriam-Webster leaves a bit to be desired with its definitions here, but let’s consider option #3: a secondary or unintended consequence. Steven C. Hackett expands on this definition in explaining externalities as “unpaid-for benefits or uncompensated costs that impact society as a by-product of production and exchange.” Externalities can be positive (e.g., your neighbor plants a beautiful garden and you get to enjoy the sights and smells free of charge from across the yard) or negative (e.g., your neighbor remodels her house and the sleep you lose because of the noise is not accounted for in the remodeling bill).

How much does health cost?
Photo credit: Cayusa via photopin cc

It’s these negative externalities  that are often undervalued when we make economic decisions, especially decisions involving industries with long supply chains and wide reaching effects. It’s easy to give actual dollar amounts to some impacts of fossil fuels. We have good estimates for how much it costs to extract, refine, produce, transport, and distribute fossil fuels. It’s harder to put a money value on things we don’t directly pay for, however, and we don’t always know what those indirect economic impacts will be.

A recent study has put a dollar amount to one of the negative externalities associated with fossil-fuel usage in the U.S. Looking at direct health effects associated with air pollution from power plants and diesel gasoline, the researchers use premature mortality, workdays lost, and other direct health care costs to give an economic value to health. Each of these measures can be quantified: we can estimate what it costs to die prematurely, to miss a day of work, and to visit the hospital when we have trouble breathing.

Specifically, this study looked at three common air pollutants coming from actual power plants across the U.S. Since we know how much of these pollutants are coming from these power plants, and we know what kinds of health effects they cause, we can estimate the total economic burden of these emissions.

Pollutants of interest:

  • PM2.5: Particulate matter with a diameter of 2.5 microns or less (between the size of a red blood cell and a typical bacteria). Health effects include coughing, lung irritation, aggravated asthma symptoms, and ultimately premature death in people who are already vulnerable to these symptoms.
  • SO2: Sulfur Dioxide. On its own, health effects are similar to particulate matter, but it also can react with other substances to form acids (Think acid rain) and adhere to particulate matter.
  • NOx: Nitrogen Oxides. Again, health effects of just NOx include inflamed airways and increased asthma symptoms but NOx also reacts to form other compounds, creating particulate matter and ground-level ozone which brings with it its own set of health problems.

Notice, those are only three pollutants out of the myriad others that float from smokestacks each year. And this study really only tackles one externality—health costs of combustion—while leaving impacts from mining, drilling, transporting and other life cycle stages off the table for now. If with these fully admitted limitations, the researchers still found a discrepancy in what consumers here in the U.S. pay for electricity and what the actual cost is to society.

The average citizen here pays $.10/kWh for electricity, but based on these estimates, if we wanted to cover the cost of premature death, missed days of work, and healthcare due to just Pm2.5, SO2. and NOx, we would pay $.32/kWh more for electricity coming from coal power plants alone.

Well, this is how much health costs, according to calculated by Ben Machol and Sarah Rizk in this study.
This graph shows the cost of air pollution-related health effects from one kWh of electricity from each of these fuels.

Does that mean we need to raise the price of electricity? Well, it could help us become better stewards of our resources by reminding us to turn off the lights and unplug the appliances. Consumers are already paying for the premature deaths, missed workdays, and hospital visits, so it’s not exactly fair to make them pay for those costs again in their electricity bills. These externality costs are extremely useful in bigger picture planning, when we’re deciding whether or not to actually build that new coal plant down the road. When we’re weighing the ultimate cost of a new power plant, oil refinery, or natural gas well, we look at all the potential benefits (e.g., jobs and cheaper oil) and compare them with the potential costs (e.g., cost of construction and pollution). Because we’re still learning how to put numbers to these more indirect costs like healthcare, they don’t always get fully considered in the final decisions. If a new coal power plant was actually going to cost us more than 3x the number on our bill in the long run, what would our decision-making process look like?

Money talks. In an era of budget cuts, the estimated $361.7–886.5 billion yearly cost for health impacts of burning fossil fuels should be more than a whisper in the conversation. So, as economists learn how to quantify externalities like health effects, social effects, and even emotional effects, they need epidemiologists, chemists, toxicologists, anthropologists, and all kinds of people immersed in the reality of externalities (including people who live the realities) to help push the numbers past underestimations and towards values that actually reflect total costs.

The university students pushing their institutions to divest their shares in fossil fuel companies get externalities. And not just because they had to learn how graph and calculate them for their economics exams. They’re learning to trace the entire lifecycle of a fossil fuel and identify the long and short term benefits and costs. And the math just isn’t adding up anymore, since the costs exceed the benefits. These students are demanding that their universities put in practice the values they teach by making decisions based on sound science and sound economics. They don’t want their universities profiting from fossil fuels while the costs to society outweigh the benefits received by shareholders. Taking money from fossil fuel companies through divestment would make a big statement. And for these students, while the argument goes beyond economics and beyond the health effects of air pollution, the bank accounts of big companies is a key place to start in pushing the issue of externalities farther into the realm of public dialogue and action.

 

 

References

Steven C. Hackett: Environmental and Natural Resources Economics, 3rd Edition (externality definition from page 56)

Machol, B., and Rizk, S. (2013). Economic value of U.S. fossil fuel electricity health impacts. Environment International, 52, p. 75–80. DOI: 10.1016/j.envint.2012.03.003

Carolyn Green March 4, 2013 at 11:07 pm

Hmmm……I wish our WI politicians were calculating the externalities related to open pit ore mining up north, as proposed in the mining bill they’re ramming through at breakneck speed, without regard to environmental impact or tribal concerns. Jobs, jobs, jobs are the stated (hoped for) result, and it is to be assumed that any “unintended” environmental damage is necessary for the greater good (meaning the jobless or Gogebic Taconite?). Big money will profit while divesting Wisconsonites of clean water, pristine trout fishing streams and so much more, as well as divesting the Bad River Tribe of their wild rice harvest. Thanks for giving me new vocabulary to use for my next letter to my representative.

Allyson Green March 7, 2013 at 1:02 am

“Externalities” and “divest” are certainly words thrown around a lot, so I’m glad you can now do more than just toss them into conversation to make a point. Use them well! Environmental impact is considered in giving out permits for mines, but if the calculated cost of externalities given in the permit application is significantly lower than the benefits (like jobs), it makes the decision to approve a permit easier for regulators and lawmakers. One of the reasons costs of environmental and social impacts is often undervalued is the use of “discounting”– another accounting technique that gives less value to future effects than immediate effects. But that’s a topic for another time… :)
Thanks for reading!

Mary Hall March 8, 2013 at 10:47 am

Very thoughtful and comprehensive. I learned a lot. You make a strong case for including externalities in public policymaking. Do you know of any cases in which congresspeople used externalities in their decionmaking?
P.S. I loved your useful comparisons for PM2.5, which is so difficult to visualize.

Allyson Green March 9, 2013 at 12:57 am

Thanks, Mary! Externalities are definitely used in decision-making, although I have to admit I don’t know to what extent they are considered. It’s easy to cherry-pick externalities to focus on while ignoring others, especially when we don’t have data for everything. I’ll have to do some research to find a good example of how lawmakers have taken them into consideration in decision-making!

Angela March 13, 2013 at 7:26 am

Hi Allyson! I liked how you showed the link between science and economics. For me, this also throws up interesting questions about how to (re)present science in the field of policy/governance. e.g. How far do you get with qualitative statements? What kind of quantitative data/representation is likely to make the biggest impact on politicians/economists? How do you generate and represent data to different publics in order for them to support new regulation?

Allyson Green March 13, 2013 at 6:56 pm

You raise some very pertinent questions that I wish we had easy answers to!

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