Ratepayers and customers have been led to believe that a power plant burning coal or natural gas is the cheapest form of electricity and therefore, should be prioritized over renewable energy generation. However, ratepayers are paying for more than the cost of the fossil fuel that is used to generate electricity. Utility customers pay for the cleanup of toxic spills and health costs associated with burning dirty energy sources. Furthermore, ratepayer’s money spent importing fossil fuels from other states causes unforeseen negative economic impacts when local renewable energy systems could provide economic benefits. Utilities have little economic incentive to reduce fuel costs since the cost of coal and natural gas are passed directly through to customers. Finally, customers ultimately pay for the impacts of climate change, including water scarcity, both of which are fueled and exacerbated by the burning of fossil fuels.

Some of these extra costs might be added to monthly electric bills in the form of added charges, also known as “trackers” or adjustments.  But taxpayers pay for damages indirectly. Part Two of this Energy & Policy Institute series highlights these externalized costs and shows that when these very real “extra” costs are added, solar power is a clear economic winner when compared to power plants relying on the burning of coal and natural gas.


After the Civil War in the United States, the network of railroads expanded causing both a significant increase in the demand for coal and allowing the transportation of coal from distant mines economical. By 1885, coal surpassed wood as the country’s primary energy source, and has since provided the largest percentage of America’s electricity portfolio while being one of the “cheapest” sources of electricity.

However, shale reserves, unlocked by fracking, have dramatically decreased natural gas prices since 2008, resulting in fuel switching by utility companies. As a result, natural gas’ share of America’s power portfolio increased from 17 percent in 2008 to 27 percent in 2013 while coal’s percentage has decreased from 48 percent to 38 percent over the same period.

The change in the fossil fuel electricity landscape, specifically the outlook for coal, has caused Peabody Energy Corp., the world’s largest private-sector coal company, to hire Burson-Marsteller, one of the world’s largest PR firm, to launch an advertising campaign praising the virtues of coal energy for poor people in an effort to export their U.S. coal and “solve” the energy poverty crisis in parts of the world.

Health Costs From Producing and Burning Fossil Fuels

A report from the National Research Council (NRC), an arm of the National Academy of Sciences, found that there are many non-climate change damages associated from producing and burning coal. The damages are from sulfur dioxide, nitrogen oxides, and particulate matters impacting human health created by burning coal. However, coal and coal waste products releases approximately 20 toxic-chemicals into the environment including arsenic, lead, selenium and radium, and mercury, which are all dangerous to human and animal welfare.

The NRC report, which did not account for the other toxins, still found that the damages average about 3.2 cents for every kilowatt-hour (kWh) of energy produced from the coal plants. The average coal power plant operating expenses for major investor-owned utilities was 3.18 cents per kWh in 2012 according to data from the U.S. Energy Information Administration.

A recent study from the Harvard Medical School’s Center for Health and the Global Environment estimated the economic, environmental, and health costs of coal. The Harvard University study found that coal’s cost on the economy is between $330 and $500 billion dollars each year, or 17-27 cents/kWh. Damages from mercury alone are $29 billion a year.

The Harvard University study features multiple categories of the externalized cost of coal use including: damage to crops and farmlands, hospitalization due to pollution impacts, and impacts on critical resources like fresh water supplies. These coal externalities are certainly not factored into the cost of electricity on a ratepayer’s monthly bill.

When factoring in the cost of all of these externalities Harvard University concluded:

The best estimate for the total economically quantifiable costs, based on a conservative weighting of many of the study findings, amount to some $345.3 billion, adding close to 17.8¢/kWh of electricity generated from coal. The low estimate is $175 billion, or over 9¢/kWh, while the true monetizable costs could be as much as the upper bounds of $523.3 billion, adding close to 26.89¢/kWh.

As for burning natural gas, the non-climate damages reported by the NRC were an average of 0.16 cents per kWh. Burning natural gas, which is mostly methane, results in significant reductions of carbon dioxide, carbon monoxide, nitrogen oxides, sulfur dioxide, and particulates.

But methane is a far more potent greenhouse gas than carbon dioxide. A study by the Center for Atmospheric Research concluded that unless methane leakage rates were kept below 2 percent, “substituting gas for coal is not an effective means for reducing the magnitude of future climate change.”

Additionally, the means to produce natural gas for consumption combines horizontal drilling with hydraulic fracturing, or fracking, which is causing health costs of its own.

Four states in early 2014, Pennsylvania, Ohio, Texas, and West Virginia, confirmed well-water contamination from fracking. Prior to this confirmation, the EPA launched three investigations regarding drinking water contamination by fracking in Dimock, Pennyslvania; Parker County, Texas; and Pavillion, Wyoming. After initially finding evidence of contamination at the three sites, the EPA dropped the investigations amid political pressure.

Recently, a Texas six-person jury ruled that that Aruba Petroleum’s fracking operations were responsible for causing the Parr family years of sickness, killed pets and livestock, and forced them out their home for months, and the family should be compensated $2.95 million.

Once solar energy is installed, it generates electricity with zero toxic emissions. According to the U.S. Department of Energy (DOE), few power-generating technologies have as little environmental impact as photovoltaic solar panels. And when accounting for the global warming impact from different energy sources in the next section, even lifecycle analyses, solar is a clear winner compared to coal and natural gas.

The Result of Burning Fossil Fuels: Global Warming’s Impact on the Economy

Fossil fuels and global warming are closely associated with each other because when fossil fuels are burned carbon dioxide is emitted into the atmosphere. The presence of high levels of carbon dioxide in the atmosphere results in an increase in the amount of heat on the surface of the Earth since carbon dioxide traps heat obtained from sunlight. The graph below shows the level of carbon dioxide in the atmosphere recorded at the Mauna Loa Observatory in Hawaii (measurements began at Mauna Loa in the late 1950s).

The electricity sector contributes 32 percent of total U.S. greenhouse gas emissions, and total annual emissions from this sector have increased 11 percent since 1990. Burning coal is the main culprit, accounting for 75 percent of carbon dioxide emissions from the sector. And, a growing list of studies conducted over the past few years have found that while natural gas might not be emitting as many toxins or as much carbon dioxide as coal, production of natural gas has become a significant source of methane leakage. Methane is a potent greenhouse gas that causes climate change, 34 times more potent than carbon dioxide over a 100-year span, and 86 times more potent over the first 20 years in the atmosphere after emitted.

The non-partisan Risky Business Project released a report in June and was the first to quantify the damage that the American economy could sustain from global warming. Using projections through 2100, the report found that the effects would vary from region to region.

Higher sea levels combined with storm surges will increase the annual cost of coastal storms along the Eastern Seaboard and the Gulf of Mexico by $2 billion to $3 billion annually within the next 15 years. Add annual hurricane costs of up to $7.3 billion and other coastal storms, the yearly bill would go up to $35 billion. By 2050, coastal properties worth between $66 to $106 billion could be under water. Crops in the Midwest will see crop losses in crop yields of 10% within 5 to 25 years. Energy demand could spike due to extreme heat, with ratepayers paying an extra $12 billion annually for the upsurge in use.

By the end of the century, the report projects a total price tag of climate impacts of $238 to $507 billion.

The Obama administration’s recently proposed Clean Power Plan will cut carbon dioxide emissions from the power sector by 30 percent nationwide below 2005 levels by 2030. However, the EPA states in the executive summary, “…coal and natural gas would remain two leading sources of electricity generation in the U.S., with each providing more than 30 percent of the projected generation.”

In other words, the Obama administration’s plan does not go far enough to curtail fossil fuel combustion if coal and natural gas will still account for at least 60 percent of the country’s generating portfolio in 2030.

Thankfully, the falling price of renewable energy, specifically solar, could transition the U.S. economy to cleaner energy sources sooner.

The use of solar energy to generate electricity, of course, does not release sulfur dioxide, nitrogen oxides, and other particulate matters impacting human health, nor does it contaminate groundwater. Solar electricity production also does not release greenhouse gas emissions. Even when accounting for lifecycle emissions to include the construction of all currently commercially available technologies, solar power is a winner over fossil fuels, according to a working group studying different technologies at the Intergovernmental Panel on Climate Change.

The Result of Burning Fossil Fuels: Global Warming’s Impact on Water

Furthermore, coal uses large quantities of water to produce electricity compared to near-zero water use for solar. In a world impacted by climate change, fresh water resources are projected to become even more valuable and should be considered when examining the cost of energy.

First, coal mining and processing withdraws massive amounts of water across the country. A report on the energy-water nexus by River Network entitled “Burning Our Rivers” finds coal mining and processing on average uses approximately 58 gallons per megawatt-hour (MWh) of electricity. The U.S. produced over 1.5 billion MWh of electricity using coal in 2013, which means approximately 238 million gallons of water was used per day to just mine and process the coal, or enough water to meet the needs of 1.3 million Americans.

Second, the production of electricity using coal also uses billions of gallons of water each year. A typical coal plant withdraws between 70 and 180 billion gallons of water per year, and consumes 360 million to 1.1 billion gallons of water according to the Union of Concerned Scientists.  River Network details that coal’s total water withdrawal is 16,000 gallons per MWh, including 692 gallons per MWh consumed to produce the power. This total water usage dwarfs the consumptive water use of solar photovoltaic power (PV) of 2 gallons per MWh. In addition, the River Network report states:

The massive freshwater withdrawals that are not consumed by coal plant cooling towers are returned to the source contaminated and at higher temperatures, threatening fish and other aquatic wildlife, creating toxic algae blooms and adding to the energy required to treat that water downstream before it is pumped into our communities.

Utilities have ignored the coal industry is quick to point-out that solar thermal power plants use as much water as coal to generate electricity; however, coal uses ten times more water than solar thermal solar plants during its lifecycle.

The cost of coal’s impact on water resources is a cost that utilities have ignored and is largely not factored into the cost for ratepayers. But, with climate change impacting the entire planet, fresh water supplies are projected to become scarcer and more valuable, which should be factored in when considering the future costs of coal usage. The severe drought in Arizona, California, Colorado and the American southwest exemplifies the need to conserve water. In the past decade, because of drought and rising demand, the Colorado River basin has lost 17 trillion gallons of water.

There’s simply no comparison between the water resources expended and impacted to produce coal-fired electricity versus solar power, but a larger, more easily quantified cost cost of coal is from toxic spills and the impact of pollution on human health.

Cost of Fossil Fuel Toxic Spills

The cost of coal’s impact on the environment is best measured by looking at the cost of cleaning up toxic spills.

In February 2014, Duke Energy’s coal ash pond on the Dan River spilled 30,000 tons of waste into the river. In June, the North Carolina Senate gave preliminary approval to legislation ordering Duke Energy to close all of its coal ash dumps in the state by 2029. Duke Energy warned North Carolina regulators that it could cost as much as $10 billion to clean up 33 coal ash ponds in the state and take as long as 30 years. With approximately 3.2 million ratepayers in the state, each ratepayer would pay $100 per year for 30 years to clean up the state’s coal ash ponds.

Duke Energy has made it clear that ratepayers should pay for coal ash clean up, not the company, despite the fact that Duke Energy made $2.7 billion in profit last year. 91% of Duke Energy customers said shareholders not ratepayers should pay for the cost of cleaning up the 33 coal ash dumps according to a recent poll from NC WARN, a North Carolina member-based nonprofit.

In August, lawmakers passed legislation regulating coal-ash pits and clean up while allowing Duke to seek regulator permission to charge consumers for cleanup costs as high as $10 billion. Duke will have up to 15 years to remove coal ash from four of its 14 coal-fired power plants that are considered to be at the highest for groundwater contamination. A newly created commission will determine what Duke will be required to do with the remaining pits.

Similarly, in 2008, the Tennessee Valley Authority Kingston Fossil Plant’s dam burst spilling 5.4 million cubic yards of coal ash into the Emory and Clinch Rivers. More coal ash spilled into the rivers than oil did from the Deepwater Horizon accident in the Gulf of Mexico two years later. “Enough muck spewed forth to fill a football field more than 2,500 feet into the air,” according the USA Today. “To clean up the spill and restore the area, TVA has spent $1 billion and is on pace to spend $200 million more by the time the project finishes in 2015.”

The EPA estimates that there are 676 coal ash ponds in the United States. The U.S. burns about 1 billion tons of coal every year, and each ton of coal leaves behind about 13 percent by volume in coal ash. The average coal plant in the U.S. is almost 40 years old, and every year, coal ash has been piling up. To make matters worse, only an estimated 25 percent of coal ash ponds in the U.S. have groundwater monitoring. Using the potential $10 billion cost of the Duke Energy coal ash clean up of 33 plants, cleaning up all the coal ash ponds in the United States could cost over $200 billion for ratepayers in the U.S.

Beyond the negative economic impact of coal ash spills, coal ash ponds also have negative impacts by intentionally dumping pollution in waterways. Coal and utility companies are allowed to directly pump wastewater from coal ash ponds into waterways because of lax regulation that allow them to “bypass” or “dump pollution” from coal ash ponds into rivers and streams. As reported in National Geographic:

[I]n the case of pumping as much as 61 million gallons of coal ash wastewater up and over the [coal ash] pond embankment into a canal draining into the Cape Fear River, Duke Energy claims that the discharge was part of “routine maintenance.” … the pumping of wastewater lasted for six months.

The pollution from coal plants account for over “half of all toxic pollutants discharged to surface waters by all industrial categories currently regulated in the United States under the Clean Water Act,” according to the EPA, causing enormous costs that are difficult to quantify.

Impact of Importing Coal Versus Investing in Solar

As we’ve illustrated above, there are additional costs for burning coal and natural gas that do not show up on electric bills. Americans are paying for a range of health costs and economic damages as a result of human induced global warming. But there are also more hidden costs charged to ratepayers: the importing of coal from just a few states in the country.

Arizona spends $580 million a year, or $197 per capita, to import coal, according to a 2012 analysis from the Union of Concerned Scientists. These customers are paying millions of dollars a year to import coal from other states, 62 percent of which comes from Peabody mines (Form EIA-923) in Colorado, New Mexico, and Wyoming. That money could be invested in solar energy to spark local economic development.

Randy Udall of the Part Carbon Institute writes, “Each year, the nation’s utilities spin $40 billion worth of coal into $160 billion of electricity.” Again, while there has been no incentive for utility companies to retire these power plants on their own-doing, external pressures such as EPA rules and cheap solar power has caused utility companies, and the front groups they belong to along with coal corporations, to advocate for their outdated business model in order to slow the growth of the emerging solar industry.

Indeed, over the past few years, Arizona Public Service Co. (APS), the state’s largest utility, has been leading the effort to weaken the distributed solar market in Arizona. Examples include:

  • Lying about paying the 60 Plus Association, a national conservative organization funded by organizations connected to the Koch brothers, to run ads against the state’s solar net-metering policy.
  • Proposing to charge customers who install solar panels $50-$100 a month on their electric bill.
  • Lobbying for a property tax on solar panels that could add an estimated $152 a year in fees for solar customers.

In a recent look at interstate coal imports, a total of 37 states, including Arizona, were net importers of coal, paying $19.4 billion in total to import 433 million tons of coal from other states, and even other countries.

North Carolina, a state that relies on coal for 44 percent of its in-state electricity generation, paid nearly $1.8 billion to import coal or $180 per capita. The state ranks second nationally for net coal import expenditures. Duke Energy, the state’s largest electricity provider, spent $1.7 billion to purchase out-of-state coal. The energy behemoth ranks second among all U.S. power providers for coal import purchases.

Again, instead of spending the consumer’s money out-of-state, money could be invested locally to grow the state economy and increase the use of clean energy. But, Duke Energy’s new CEO Lynn Good is moving to limit clean energy investment in the state, telling reporters in January that the utility will attempt to reduce how much solar owners are paid for generating net electricity. A spokesman for the company has said legislators will see their company’s recommendation by the end of the year.

North Carolina has over 210 sunny days per year yet has only 1,300 rooftop solar systems installed. The good news is that solar energy so far has proven to be a great economic investment option. In 2013, $787 million was invested in North Carolina for solar energy, an increase of 156 percent from the pervious year. The average cost for a solar installation dropped 37 percent since 2010. And every $1 the state invests in tax credits for renewable energy results in $1.93 in payments to state and local governments.


Solar has enormous economic value especially when considering the external costs of fossil fuels. The economic impact of fossil fuels is not limited to the cost on a monthly electricity bill given the measurable negative impacts on the environment and natural resources, and the costs of pollution on human health. Ultimately, citizens and ratepayers pay the bill when coal-cleaning chemical spills occur, coal ash leaks into rivers, emitted or injected toxins cause health problems, and global warming-fueled extreme weather hurts the economy. Factor in the amount of fresh water it takes to run a coal plant, especially during drought, and the true cost of fossil fuels begins to make solar and other clean energy sources even more financially beneficial to consumers than they are already.

Read Part One: Wall Street and Regulators Choose Solar Over Fossil Fuels

Posted by Matt Kasper

Matt Kasper is the Deputy Director at the Energy and Policy Institute. He focuses on defending policies that further the development of clean energy sources. He also focuses on the companies and their front groups that obstruct policy solutions to global warming. Before joining the Energy and Policy Institute in 2014, Matt was a research assistant at the Center for American Progress where he worked on various state and local policy issues.

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  1. […] us in the long run. Today, you might be able to buy cheap gas at the gas station, but think of the external costs of fossil fuels: costs associated with irreversible damage to the atmosphere, devastating climatic events and its […]

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