Coal is cheap.  Coal mine disasters are not.  In West Virginia on April 5th, the worst U.S. coal mining accident in 40 years came at the cost of 29 lives.  Fifteen days later the Deepwater Horizon oil drilling rig exploded and caught fire in the Gulf of Mexico.  Eleven lives were lost.  Oil rig disasters are not cheap.  In fact, lives are lost in the process of us enjoying most every economic aspect of our lives whether it is the construction of a high-rise or trucking toys to Wal-Mart. This is a dramatic way of saying that the all-in cost of every economic event is greater than the financial cost paid directly by the user. 

The cost paid by the user plus the externalized costs equals the all-in cost.  If you were to ask the residents of the Montcoal, WV, the all-in cost of coal is about $50 per ton plus the loss of their husbands, sons and fathers.  For a Louisiana shrimper the all-in cost of oil is $80 per barrel plus the loss of his income for years. 

There are externalized costs associated with every source of energy whether it is coal or solar, wind or oil, nuclear or cow dung.  The only universal reducer of externalized costs is “to consume less energy” either through energy efficiency or frugality.  As a society we will be better able to make rational decisions about energy production and use if we have a clearer vision of the externalized costs associated with the various sources of energy.

I am at odds with the climate change deniers and with the strict environmentalists.  However, I would no more attempt to change them than I would try to persuade a Red Sox fan or a Yankees fan to switch allegiance to their rival.  It just isn’t going to happen.  What the Bostonian and New Yorker have in common is their love of the game.  What I share with the climate change deniers and the strict environmentalists is a belief that there are consequences to our choices of energy sources.  Clearer information about the externalized costs of all the energy options will bring all parties closer together. 

To climate change deniers I say that it is not inconsistent for them to maintain their skepticism while at the same time embrace those changes which will encourage the shift away from fossil fuels.  Let’s give everyone the information to make decisions on an apples-to-apples basis.  The explosion of just one oil rig in the Gulf of Mexico generates an externalized cost to our economy and to those of us who pay taxes that is huge.  The cost and fines paid by the rig operator, BP, will be a small fraction of all the externalized costs to the region, our economy and the ecosystem.  (FYI.  The number of oil platforms in the Gulf of Mexico is in the thousands). 

If we locked a climatologist, an economist and an actuary in a room for a few days they could generate a rough model of some of the externalized costs associated with drilling in the Gulf of Mexico.  Insurance companies already have the data about the probability of loss from fire, hurricanes, etc.  Those costs are built into the price of oil.  Using those same probabilities we want to model what the externalized costs which are not expressed in the barrel price of oil.  Over time what is the cost of oil production which is not paid for by the user of the oil?  Is it $3 per barrel or $30 or ?  Of course it’s a projection and all projections are guesses, but wouldn’t a wild-guess be more useful than what we currently have, which is zip.  I am not suggesting that off-shore drilling is inherently good or bad.  I just don’t know how high the all-in cost might be.

My message to environmentalists is the same.  Let us focus on shared beliefs.  In my adult lifetime the population of the United States has increased by 100 million people.  Locate a 21 year-old and ask him or her to think about adding the equivalent of another dozen cities the size of New York City during the next 30 or 40 years.  Energy frugality and efficiency will help, but the demand for energy will increase year-over-year. 

A more thoughtful examination of externalized costs can guide us to decisions which are quicker and more insightful.  Some birds and bats are killed by wind turbines (and also by tall buildings, semi-trucks and power lines).  My guess is that the recent event in the Gulf of Mexico will kill more wild life in the next few months than all the wind turbines in the United States will over the next several years.  If we had a better measure of the externalized costs we would be enabled to make better decisions.  Obstructionists who block the construction of large scale wind and solar energy projects may be unintentionally advancing the growth of fossil fuel alternatives which are substantially more harmful to the very creatures they seek to protect.  The only way we can address the issues logically is to have the true costs, the all-in costs, as the basis for our judgments.

Tags: Deepwater Horizon, Externalized costs, Gulf of Mexico

This entry was posted on Sunday, May 2nd, 2010 at 1:07 pm and is filed under Energy, Solar Energy, Wind Energy . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.