Valuing residual emissions: Alternative methods and resource planning implications in California

In recent years, many public utility commissions have broadened considerations of environmental effects to include the valuation of environmental externalities in electric utility resource planning. The information needed to value environmentally related benefits and costs directly includes estimates of the damages associated with environmental effects, mitigation and control costs, and the willingness of the public to pay for environmental improvements. Two major issues related to the valuation of environmental externalities in resource planning include the values to be placed on residual emissions and the application of values to areas outside the jurisdiction of the regulatory agency. These issues are outlined in general and discussed in more detail for the case of California electric utilities. The values placed on residual emissions in California are listed and the results of two sensitivity analyses are presented. The first analysis compares the results of alternative control cost values applied to out-of-state resources. The second compares the application of control cost values and damage-based values for in-state resources. The implications of alternative values and their application to resource planning are noted. It is seen that uncritical acceptance of the results of applying values in long-range resource planning can magnify unintended adverse consequences. The out-of-state sensitivity analysis illustrated the effects of very high values, which substantially changed the need for new resources, and the result did not meet the objective of achieving environmental goals at the lowest possible cost. 12 refs., 2 figs., 4 tabs