Hidden Costs

Energy always costs more than we think because the price we pay at the gas pump or electric meter does not reflect the numerous hidden costs of adverse impacts produced in the course of providing energy. Although most Americans understand that the price of energy does not typically include climate change effects of greenhouse gas (GHG) emissions, they may not be aware that there is a wide range of other hidden costs. These take the form of expenditures for health services, for losses in crop and timber yields, for remediation of natural resources and land use, and more. Add up the dollar value of all those damages and the total cost to society is much higher than the retail cost of energy.

Add up the dollar value of all those damages and the total cost to society is much higher than the retail cost of energy.

For example, the 2005 Academies study of 95% of the nation’s coal-burning power plants assigned estimated monetary amounts to non-GHG damages, primarily the effects of putting particulate matter, sulfur dioxide, and nitrogen oxides into the air. Those pollutants affect premature mortality and conditions such as chronic bronchitis and asthma. In 2005, electricity cost consumers a little more than 8.1 cents per kilowatt hour (kWh) nationwide. The study found that, on average, electrical generation did 3.2 cents worth of damage for every kWh—an additional 40% of the purchase price. Some plants caused estimated damage as high as 12 cents per kWh. 

Cars and trucks have similar unseen, non-GHG costs that are not evident from what we pay to operate our vehicles. The immediate health effects of smog and other emissions are only part of the picture. The total life-cycle impact of any vehicle is not limited to operation, which accounts for only about one-third of the hidden costs. Significant factors include drilling and extraction of the resources used for fuel; refining and conversion of resources into fuel, as well as transporting the fuel for distribution; and manufacturing, production, and disposal. The 2005 study found that those costs added between 1.2 and 1.7 cents per mile traveled above the cost of gas, oil, and maintenance.

Viewed in that larger context, hybrid or all-electric vehicles (which may appear to have minimal effects on the environment) do not always have lower total impact than conventional vehicles. In many areas, electricity is largely produced from burning coal*; and battery and electric motor production—being energy- and material-intensive—added up to 20% to the damages from manufacturing. 

Hidden costs are ubiquitous. Corn ethanol has impacts on the use of land and water and on food prices if the same fields would otherwise produce edible crops. The cost of electricity—and the marginal cost of using more—does not factor in the substantial costs of power outages when grid capacity is exceeded. Hydraulic fracture in gas and oil wells requires millions of gallons of water per well, can release methane gas, and may contaminate surface and groundwater.

Society has begun to pay considerably more attention to hidden costs and their effects are likely to become a significant factor in national energy policy.

* In locations where electricity is generated by “greener” methods, these hidden costs will be much lower.