The Environmental Costs of Energy Generation: An LCOE Analysis of ISO New England Generating Facilities

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Kenneth Gillingham
Essay Abstract: 
Utilities, policymakers, and private investors frequently consider only the private costs of energy generation, leading to unsustainable investment and policymaking decisions. This analysis incorporates the environmental costs of energy generation into the levelized cost of energy (LCOE), a common all-in metric to express energy cost, for 132 generating facilities located within the ISO New England electric grid. I examine eight different fuel types and incorporate air pollution, carbon emissions, wildlife, seepage, disposal, and other externality costs into a baseline LCOE for each facility. After incorporating these environmental costs, wind and solar facilities are the most cost-effective energy sources with an average LCOE 9-10 times lower than natural gas and 18-19 times lower than coal. Hydropower also performs substantially better than all fossil fuels, while nuclear and biopower remain comparable to natural gas. Across all fuel types, energy costs increase 26-500% after including these environmental externality costs. I conclude by discussing areas for future research and the implications of these findings on grid optimization and decarbonization efforts moving forward.