Keeping the Lights On Doesn’t Mean More Pollution

In August of 2017, Energy Secretary and former governor Rick Perry proposed to strengthen subsidies to coal- and nuclear-fueled electricity plants.  Why?  According to his proposal, coal and nuclear power plants are indispensable to our national security by virtue of the fact that they can store energy on-site. And, since the past few years have seen declines in both coal and nuclear facilities in the United States, the concern is that the nation’s electricity grid will be less reliable in the future. The proposal would have guaranteed cost recovery and a fair rate of return for generators that can store at least 90 days’ worth of energy on site.  Fortunately, the Federal Regulatory Commission rejected it.  Even so, it’s still worth looking at the pros and cons of such a proposal.

More power outages and more disruptions would, of course, harm our energy-intensive economy. As the recent spate of hurricanes (including high winds in my home state of Maine) have shown, such energy disruptions can be costly. In fact, 2017 was the costliest year in terms of economic damages from natural disasters in the US.

Would subsidizing coal and nuclear facilities really have been the best solution? To answer that, we need to take a deeper look.  When I teach cost-benefit analysis, I encourage my students to consider the baseline – what would have happened in the absence of the policy or proposal in question. The number of coal and nuclear plants in this country has been declining for decades. The decline can be attributed to several factors, including environmental regulations, but mainly the declines are due to market forces (low electricity prices, declining electricity demand, and new supplies from natural gas) and aging infrastructure. Without taking a close look at the finances of the plants in question, we can assume that at least some of these plants would have been likely to follow.  Increasing subsidies to already struggling nuclear and coal plants would likely have been just another case of throwing good money after bad.

When considering the costs and benefits of the proposed plan, there would have been several different categories, each accruing to different groups.  The beneficiaries of the plan would likely have been owners and shareholders of the qualifying coal and nuclear plants.  Their consumers, as well, may have benefited from a lower average wholesale price of electricity; however, the proposal recommended adding a surcharge to consumers’ bills in order to cover the costs. According to the analysis done by Resources for the Future, the drop in the wholesale price of electricity would not have been enough to cover the surcharge.

Moreover, practitioners of cost-benefit analysis need to carefully consider all the costs and benefits of a proposal, not just those that are easily monetized.  A complete analysis of the costs and benefits of Secretary Perry’s proposal should include the damages caused by pollution from coal and nuclear-powered plants to humans and agriculture. (While the generation of electricity from nuclear plants does not create air pollution, the mining for uranium does create environmental destruction.) Such external costs are in reality a passive subsidy that coal and nuclear plants have enjoyed for decades. An additional subsidy would exacerbate the problem. According to the analysis done by Resources for the Future, the proposed plan would have immediately increased sulfur dioxide and nitrogen oxide, two pollutants generated by the combustion of fossil fuel.  This increase in emissions is linked to an increase in premature deaths caused by respiratory diseases such as chronic bronchitis and emphysema. Once environmental costs are factored in, net benefits to society would have been decidedly negative.

The next question is: would the subsidies have alleviated the problem of grid instability? The answer to this question actually lies in the question itself.  Is there really a problem of power disruption caused by declining coal and nuclear plants? Some recent research by the Rhodium Group says no.  Researchers examined the data collected by the Department of Energy whenever an electricity generator experiences an outage or a disturbance.  Results indicate that disruptions in fuel supply were responsible for less than 1 one hundredth of one percent of lost customer service hours between 2012 and 2016.  The remainder were caused by disruptions to energy distribution  Primarily, those disruptions were caused by severe weather, not by supply disruptions.  The FERC ultimately agreed when it rejected Secretary Perry’s proposal.

However, the FERC did agree that the reliability of the grid was an issue looking into.  If the goal of Secretary Perry’s proposal was to increase the reliability of the grid – not just to prop up nuclear and coal – there are several less costly and ultimately beneficial ways of doing so.  One such possibility is to replace our nation’s aging energy-related infrastructure, much of which dates to the 1950s and 60s. Energy infrastructure actually received a “D+” on the 2017 report by the American Society of Civil Engineers. Upgrading the energy infrastructure would come with many ancillary benefits.

A second alternative would be to invest in distributed energy and microgrids.  Distributed energy is the use of small, decentralized power generation and storage systems. While larger utilities consider the rise of distributed energy to be a threat to the existing system, the greater use of distributed energy could actually increase the resilience of our current, outdated system.  However, doing so will require innovations in monitoring, modeling, “smart switches,” and other technologies to manage peak demand and integration.

A third possibility is to invest in better long-term energy storage. Lithium ion batteries may be our best choice for now, but other storage technologies, such as flow batteries or zinc air batteries.  But by far the best alternative – one that should be a crucial part of any solution – is energy conservation.  A unit of energy conserved is one that doesn’t need to be generated.  You don’t get much more reliable than that.