How accounting for climate and health impacts of emissions could change the US energy system

Abstract

This study aims to determine how incorporating damages into energy costs would impact the US energy system. Damages from health impacting pollutants (NOx, SO2, particulate matter -- PM, and volatile organic compounds -- VOCs) as well as greenhouse gases (GHGs) are accounted for by applying emissions fees equal to estimated external damages associated with life-cycle emissions. We determine that in a least-cost framework, fees reduce emissions, including those not targeted by the fees. Emissions reductions are achieved through the use of control technologies, energy efficiency, and shifting of fuels and technologies used in energy conversion. The emissions targeted by fees decrease, and larger fees lead to larger reductions. Compared to the base case with no fees, in 2045, SO2 emissions are reduced up to 70%, NOx emissions up to 30%, PM2.5 up to 45%, and CO2 by as much as 36%. Emissions of some pollutants, particularly VOCs and methane, sometimes increase when fees are applied. The co-benefit of reduction in non-targeted pollutants is not always larger for larger fees. The degree of co-reduced emissions depends on treatment of life-cycle emissions and the technology pathway used to achieve emissions reductions, including the mix of efficiency, fuel switching, and emissions control technologies.