Issues and methods in incorporating environmental externalities into the integrated resource planning process

Abstract

This report is a review of current practices and policies in considering environmental externalities in the integrated resource planning and performance based regulation (IRP/PBR) process. The following issues are presented and examined: What are the pros and cons of treating environmental externalities in the IRP process? How are potential future environmental regulations being treated? Are externalities being qualitatively or quantitatively considered, or monetized? Are offsets being allowed? How are externality policies being coordinated among different levels and branches of governments? Should environmental externalities be considered in dispatching a utility`s existing resources? What are the procedures for addressing uncertainty in incorporating environmental externalities into IRP? How are externalities valued? What are other approaches to addressing environmental externalities. This report describes seven major approaches for addressing environmental externalities in the IRP process: qualitative treatment, weighting and ranking, cost of control, damage function, percentage adders, monetization by emission, and multiattribute trade-off analysis. The discussion includes a taxonomy of the full range of alternative methods for addressing environmental externalities, a summary of state PUC actions, the role of state laws, the debate on environmental adders, and the choice of methodologies. In addition, this report characterizes the interests of stakeholders such as the electric industry,more » fuel suppliers, energy consumers, governmental agencies, public interest groups, consultants, and others. It appears that the views, positions, and interests of these stakeholders are affected by their perceptions of the potential impacts on their economic interests or the viability of their position on environmental policy, by the societal perspective they take, and by the orientation of the analysts toward market competition and their respective accumulated expertise.« less