Externalities in utility planning: What would it cost?

Consideration of environmental externalities is becoming an increasingly important factor in the selection of new electricity generation capacity. A recent survey showed that 17 state public utility commissions had instituted or are developing rules addressing environmental externalities as of mid-1991. In general, these rules require electric utilities to consider the externality costs of environmental emissions as well as traditional economic costs when evaluating resources as part of an integrated resource or least-cost plan. This article reposts on a computer simulation model used to examine the potential impact of the adoption of environmental externalities in utility planning. The model, FOSSIL2, is a national energy model that is used by the Department of Energy as part of the National Energy Strategy (NES). FOSSIL2 is a useful model for examining the consequences of internalizing environmental externality costs because it explicitly simulates investment in new electric capacity, capital stock turnover, and electricity rates