Electricity Supply

Electricity rates do not take into account all the costs of the harmful environmental effects of electricity production. In meeting federal environmental requirements, utilities incur costs--for pollution control equipment, for example--that are considered internalized environmental costs because they are included in electricity rates. However, other costs--those for residual pollution emission, which are not controlled--are not reflected in electricity rates. The environmental and health consequences of these residual emissions are considered external costs, which are referred to as externalities. Many states require utilities to consider these externalities for different energy sources (such as coal, nuclear energy, natural gas, and renewable energy) in deciding how to produce electricity. This report reviews whether the consideration of externalities affected the use of renewable energy, such as wind, solar, or geothermal power. GAO also discusses how the states consider externalities in planning for electricity needs and what the Energy Department's role in this activity is. GAO provides more-detailed information on California, a leader in the generation of electricity from renewable energy, and New York, a leader in the consideration of externalities.

GAO found that: (1) the consideration of externalities in planning for electricity production has generally not affected the selection or acquisition of renewable energy sources, since electricity from renewable energy costs so much more than electricity from fossil fuels; (2) the use of renewable energy to produce electricity has primarily resulted from special programs that require such use; (3) 16 states assign a quantitative value to externalities, 9 states assign a qualitative value to externalities, and the remaining states do not consider externalities in planning for their electricity needs; and (4) DOE role in considering externalities has mainly been to conduct and support research.