Environmental Economics

The WSJ's Numbers "guy":

The true cost of electricity is difficult to pin down. That’s because a number of inputs comprise it: the cost of fuel itself, the cost of production, as well as the cost of dealing with the damage that fuel does to the environment.

Energy Points, a company that does energy analysis for business, factors in the these myriad values in terms of what percentage of the energy input—fossil fuel energy, plus energy for production and energy for environmental mitigation—will become usable electricity. …

In any given area, electricity might come from a number of different sources, including oil, coal, gas, wind, hydropower and solar. Each has its own set of costs, both internal and external. From Energy Points:

Energy Points’ methodology measures environmental externalities and calculates the energy it takes to mitigate them. For example, it quantifies the greenhouse gas (GHG) emissions that result from turning coal and natural gas into electricity and then calculates the energy it would take to mitigate those emissions through carbon capture and sequestration. Water scarcity and contamination are quantified as the energy that is required to durably supply water to that area. And in the case of solar or wind energy, Energy Points incorporates the life cycle impact of manufacturing and shipping the panels.

This metric is a more rounded calculation than merely cost or carbon footprint. For example, hydro electricity has the lowest carbon footprint (4 kgCO2/kWh), but when Energy Points factors in the full lifecycle of the different fuels, wind is the most efficient. Additionally, natural gas is the cheapest fuel to produce electricity, according to levilized cost data from the Environmental Protection Agency, which measured the total cost of building and operating a generating plant over an assumed financial life and duty cycle. Though it’s cheap, it’s not very efficient if you factor in its production and emissions.