The Valuation of Environmental Externalities in Utility Regulation

Monetizing environmental externalities provides an approximation of the societal value of reducing impacts on human health and the environment from electirical enrgy supply, including utility and non-utility fossil-fired generation, demand-side management and off-system power purchases. A dollar estimate of the full societal cost of the supply option is established by placing a value on the air, water and terrestrial effects of each supply option and adding that to the option’s capital, operating and maintenance costs. Repeating this exercise allows different electric power supply options to be compared on a full-societal cost basis. In monetization, these externalities are expressed as a cost/unit of the externality, such as $/lb of emissions of $/gal of water consumed, and the full societal cost is usually stated as a cost/kWh generated.