True Cost Energy Pricing

If Federal legislation is passed, all sources of energy will likely be priced at their true cost.

True cost pricing is pricing that includes all direct costs, social costs, and environmental costs of a particular form of energy.

By definition, renewable energy and energy efficiency involve a near-zero true cost premium. In contrast, fossil fuels are attractive and widespread because they have a low price relative to other forms of energy (renewable energy, nuclear power, etc). However, the price that consumers pay for fossil fuels does not reflect their true cost. Numerous social costs related to environmental and health impacts associated with fossil fuels are not included in their curent prices.

If pending Federal legislation comes to pass, the true cost of carbon emissions will be factored into the cost of fossil fuels going forward, instead of ignored and shifted into the future.

Here is an example of how true cost energy pricing could work, and how it would change the cost-calculus of companies choosing between three energy procurement alternatives related to real estate and energy costs:



Sources: US Energy Information Administration; National Academy of Sciences

The textbook rational business is interested in short-term profit maximization. Accordingly, it would seem that an organization would not be in favor of higher energy prices.

However, as previously noted, the alternative of not paying for the costs of carbon emissions now is a shift in those costs to future generations - which will result in high future costs of managing environmental damage and economic problems that result.

Given a choice between these options, it is no wonder that organization after organization is publicly supporting clean energy legislation and the true cost pricing mechanisms that raise conventional energy prices a little bit now in order to avoid higher costs in the future.