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Paper Argues Energy Prices Should Reflect External Costs

A new paper by a progressive think tank argues energy prices are too low. The authors examine the external costs that result from different fuels and conclude that the country’s energy mix would change if consumers were forced to pay more.The paper lays out the case for more expensive energy, arguing that ratepayers aren’t paying for the external costs of fossil fuels when they flip a light switch or fill up at the pump.Adam Looney is a senior fellow at the Brookings Institution. He says there are two other costs that should be added on to the base rates for fuels like coal and gas. One is the costs to the climate, and the ways that carbon-based energy sources accelerate climate change. Looney says the other is more noticeable, and it’s the effect on human health and the environment.

“One of the interesting things is for certain fossil fuels, the major source of external costs is not necessarily carbon dioxide and climate change,” he said. “They’re actually the immediate effects on health of local residents.”In the paper, Looney lays out the true cost of various energy sources, when all factors are taken into account. New coal plants are among the most expensive, but renewable sources are even pricier. The cheapest? New natural gas. Rates are at record lows, and the fuel isn’t as damaging as coal to health or the environment.Looney says if consumers were paying the real cost of coal and other fossil fuels, market factors would push the country towards other sources of energy.“So I think that you can get the same outcomes through market-based approaches as you do from regulation and there are a lot of positive reasons to take that sort of approach.”Coal is still the dominant energy source in the United States, but its share has declined in recent years.