Environmental externality surcharges in power system planning: a case study of New England

In several states, public utility commissions have adopted surcharges for environmental externalities (adders) to be used in electric utility planning. The Massachusetts adder system applies major surcharges to emissions of sulfur dioxide, nitrogen oxides, and carbon dioxide. The authors explore the implications in terms of cost and emissions of using the Massachusetts adders as shadow prices in dispatching the pooled electric power system in New England. The analysis has use of a probabilistic production cost simulation model to estimate the effects on the present system, and on a resource mix envisioned 15 years hence. The externality cost adders are used to influence the dispatch of a fixed configuration of power plants and are not used to affect the composition of the future resource mix. Compared to conventional dispatch, emissions of SO/sub 2/ and NO/sub x/ drop by 10% to 15%, while carbon emissions remain virtually unaffected. The production cost penalty is 3% to 4%. In each year, reductions are accomplished mainly by shifting generation away from New England's coal steam power plants.>