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Considering the Real Costs of Our Energy Economy

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Davos 2007 has officially begun. For me, the highlight of the first day consisted of a series of debates, part of CNBC's Make Green Pay panel.

As is true with most events at the World Economic Forum, the topics of each of the event's three panels were controversial, and the speakers on both sides were thoughtful and impressive.

I participated as a featured speaker discussing, among other things, the viability of nuclear energy as a solution to our world's current fossil-fuel-based energy economy.

As concerns over climate change have mounted in recent years, nuclear energy has been touted as a viable alternative to our current dependency on carbon-intensive energy sources.

The truth however, is that when the real costs of nuclear power are considered, the energy source is quickly taken out of the running.

In fact, on a level playing field with no taxpayer subsidies, nuclear power is dead. If utilities pay the full costs of nuclear waste disposal, of insurance against an accident, and of decommissioning plants that are worn out, the cost of nuclear power will far exceed that of other promising alternatives.

This notion of real costs is something that our fossil-fuel-based throwaway economy does not take into account.

In my recent book, Plan B 2.0 - which is downloadable, free of charge from the Earth Policy Institute's website - I urge considering the real costs of all products as we develop the necessary 21st century, Plan B, economy.

What does "real costs" mean? It means including the total ecological and health costs of products on their prices.

Throughout most of recorded history, the indirect costs of economic activity were so small that they were rarely an issue and, even then, only at the local level. But with the sevenfold global economic expansion since 1950, the failure to address these market shortcomings and the irrational economic distortions they create could be fatal.

Our modern economic prosperity is achieved in part by running up ecological deficits, costs that do not show up on the books, but costs that someone will eventually pay.

The burning of coal, for example, results in increased costs for society as citizens are affected by breathing polluted air, as well as for governments that will be forced to deal with the effects of climate change.

Instead of pushing these costs - which will have to be paid at some point - off until the future, it makes more sense to incorporate them at the front end. The method for this, increasing taxes on environmentally damaging goods while decreasing income taxes, is a model I discuss at length in Plan B 2.0.

It is also something that has been proposed by ecologists and economists alike, and, when real costs are included in the pricing of goods, it is the greener, alternative energy sources - like wind, solar, and geothermal - that emerge as the cheapest, most viable solutions to our current model.

The notion of taxing products to include their entire cost to society is something that is being put into practice here in the United States in the form of tobacco taxes.

A study by the Centers for Disease Control and Prevention (CDC) in the United States calculated the social costs of smoking cigarettes at $7.18 per pack. As a result, prices for cigarettes in many states across the country are rising toward this number - a result of increased taxes intended to offset the social costs.

When it comes to energy, the International Center for Technology Assessment has done a detailed analysis, entitled "The Real Price of Gasoline." The group calculates several indirect costs, including oil industry tax breaks, oil supply protection costs, oil industry subsidies, and health care costs of treating auto exhaust-related respiratory illnesses. The total of these indirect costs centers around $9 per gallon, somewhat higher than the social cost of smoking a pack of cigarettes. Add this external or social cost to the roughly $2 per gallon average price of gasoline in the United States in early 2005, and gas would cost $11 a gallon (this does not include projected costs of climate change). These costs are real; someone bears them.

Now that these costs have been calculated, they can be used to restructure taxes--lowering income taxes and offsetting this with a rise in gasoline taxes.

This practice is a necessary component to any energy economy we consider as a solution to our current fossil-fuel-based energy economy.

That being said, nuclear energy with the real costs of insurance, construction, security and waste disposal becomes among the most expensive form of energy in the world.

Conversely, green, clean, renewable energy becomes the most viable; the costs we see today are very close to the real costs we would endure as most of these energy sources have few if any hidden effects on society.

It's time we start being honest about what various energy options actually cost in the long run. It was the failure to do so in the first place that brought us to this juncture in human history, where we must decide on our future. If we are willing to acknowledge the full effects of our actions - including total societal costs of our energy choices - then we may yet avert some of the impending consequences of global climate change.

For more Davos coverage -- including news, videos, and blog posts -- visit the Davos Conversation site.