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The Hidden Costs of Energy Production: $120 billion a year +

Yes, $120 billion a year: That’s the final tally of the negative effects of energy production and use. And that's just a partial estimate, because it doesn’t include damages from climate change, harm to ecosystems, effects of some air pollutants such as mercury, and risks to national security.

Who arrived and that number—and why?

In late October, the National Research Council, an arm of the National Academies of Science, released, at the request of Congress, a report that examines the “hidden costs” of producing and using energy. These hidden costs are what economists refer to as the “external” effects of producing and using energy, such as impact on human health.

The final cost: $120 billion in 2005, the latest year for which data was available. That figure includes health damages from air pollution associated with electricity generation, motor vehicle transportation and heating. Let’s look at each of those areas in more detail.

- Electricity generation. Electricity is generated from coal, natural gas, wind power and nuclear energy. In regard to hidden costs, producing electricity from coal and natural gas are most significant—about $62 billion a year for coal and $740 million a year from natural gas. Less significant are the hidden costs of producing electricity from wind power and nuclear energy. That, in part, is because these are not widely used. Wind power, for example, produces around 1% of U.S. electricity, and nuclear reactors produce around 20%.

- Motor vehicle transportation. Transportation relies almost exclusively on oil and accounts for nearly 30% of U.S. energy demand. As a result, it generates significant hidden costs: $56 billion a year. That’s 1.2 cents to 1.7 cents per mile traveled, regardless of the technologies or fuels used (ethanol vs. gasoline, for example).

- Heating. Finally, heating for residential and commercial buildings is generated from natural gas or, to a lesser extent, the use of electricity. The total hidden costs of using energy for heating purposes are about $1.4 billion a year—11 cents per thousand cubic feet.

All that information is interesting, but what does it all mean? If the study drew one conclusion, it would be this: Governments, businesses and individuals should consider not just the market price of their energy, but the long-term hidden costs.

Considering long-term hidden costs can be tricky, however, because sometimes using “clean” energy can have costs as well. One example: Electric and hybrid vehicles have greater hidden costs than many other technologies, because while operating them produces few or no emissions, producing the electricity to power them requires the use of fossil fuels. Another example: As clean as nuclear energy is, if uranium mining activities contaminate ground or surface water, people could potentially be exposed to radioactive materials.

These examples illustrate an important point: When evaluating the total cost of your energy consumption, it’s important to consider lifetime expenses. For example, when evaluating the impact of using energy to run motor vehicles, you can’t just look at the pollution generated when gasoline is used to run the car; you also have to look at the pollution generated from the extraction and refinement of oil, and the transportation of fuel to gas stations.

In sum, we can’t live without energy—but it’s important to remember all of the costs of producing and using it. And while taking steps to reduce those costs can be challenging, it is possible.

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