The Benefits of Internalizing Air Quality and Greenhouse Gas Externalities in the Us Energy System

The emission of pollutants from energy use has effects on both local air quality and the global climate, but the price of energy does not reflect these externalities. This study aims to analyze the effect that internalizing these externalities in the cost of energy would have on the US energy system, emissions, and human health. In this study, we model different policy scenarios in which fees are added to emissions related to generation and use of energy. The fees are based on values of damages estimated in the literature and are applied to upstream and combustion emissions related to electricity generation, industrial energy use, transportation energy use, residential energy use, and commercial energy use. The energy sources and emissions are modeled through 2055 in five-year time steps. The emissions in 2045 are incorporated into a continental-scale atmospheric chemistry and transport model, CMAQ, to determine the change in air quality due to different emissions reduction scenarios. A benefit analysis tool, BenMAP, is used with the air quality results to determine the monetary benefit of emissions reductions related to the improved air quality. We apply fees to emissions associated with health impacts, climate change, and a combination of both. We find that the fees we consider lead to reductions in targeted emissions as well as co-reducing non-targeted emissions. For fees on the electric sector alone, health impacting pollutant (HIP) emissions reductions are achieved mainly through control devices while Greenhouse Gas (GHG) fees are addressed through changes in generation technologies. When sector specific fees are added, reductions come mainly from the industrial and electricity generation sectors, and are achieved through a mix of energy efficiency, increased use of renewables, and control devices. Air quality is improved in almost all areas of the country with fees, including when only GHG fees are applied. Air quality tends to improve more in regions with larger emissions reductions, especially for PM2.5