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Full Cost Accounting for the Life Cycle of Coal

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Each stage in the life cycle of coal—extraction, transport, processing, and combustion—generates a waste stream and carries multiple hazards for health and the environment. 

These costs are external to the coal industry and are thus often considered “externalities.” We estimate that the life cycle effects of coal and the waste stream generated are costing the U.S. public a third to over one-half of a trillion dollars annually.

Many of these so-called externalities are, moreover, cumulative. Accounting for the damages conservatively doubles to triples the price of electricity from coal per kWh generated, making wind, solar, and other forms of nonfossil fuel power generation, along with investments in efficiency and electricity conservation methods, economically competitive. We focus on Appalachia, though coal is mined in other regions of the United States and is burned throughout the world.

Coal has long been a critical energy source, powering everything from homes to industries. Despite the growing popularity of renewable energy, coal still accounts for a significant portion of the world's energy mix. However, the production, transportation, and consumption of coal have significant environmental and social costs that are often not accounted for in traditional cost accounting methods. That's where Full Cost Accounting comes in. In this article, we'll explore what Full Cost Accounting is, why it matters, and how it can be applied to the life cycle of coal.

What is Full Cost Accounting?

Full Cost Accounting (FCA) is a methodology that considers the social and environmental costs of a product or service over its entire life cycle, from production to disposal. This approach seeks to quantify and internalize the external costs that are often borne by society or the environment, such as pollution, health impacts, and climate change. FCA takes into account not only the direct costs of producing and consuming a product but also the indirect costs that are often hidden or overlooked.

The Environmental and Social Costs of Coal

Coal is a dirty fuel, and its production and consumption have significant environmental and social costs. From mining to transportation to combustion, every stage of the coal life cycle has impacts on the environment and human health. Coal mining can lead to deforestation, habitat destruction, and water pollution. Transportation of coal, whether by rail or by ship, can result in air pollution, spills, and accidents. The combustion of coal releases large amounts of greenhouse gases, including carbon dioxide, which contribute to climate change. In addition, coal combustion can result in air pollution, which has significant health impacts on communities living near coal-fired power plants.

Traditional Accounting and the Hidden Costs of Coal

Traditional accounting methods often fail to account for the environmental and social costs of coal production and consumption. These costs are externalized, meaning that they are not factored into the price of coal and are instead borne by society or the environment. This results in a distorted market that does not reflect the true cost of coal. By not accounting for the external costs of coal, traditional accounting methods incentivize the production and consumption of coal, despite its significant environmental and social impacts.

Applying Full Cost Accounting to Coal

Full Cost Accounting can help to address the market distortion caused by traditional accounting methods by internalizing the external costs of coal. By considering the social and environmental costs of coal over its entire life cycle, FCA can provide a more accurate picture of the true cost of coal. This can help to inform policy decisions and market incentives that better reflect the environmental and social impacts of coal production and consumption.

Conclusion

The environmental and social costs of coal are significant, and traditional accounting methods often fail to account for these costs. Full Cost Accounting provides a methodology for quantifying and internalizing the external costs of coal, resulting in a more accurate reflection of the true cost of coal. By accounting for the full life cycle of coal, from production to disposal, FCA can inform policy decisions and market incentives that better reflect the environmental and social impacts of coal. As we move toward a more sustainable energy future, Full Cost Accounting will play an increasingly important role in

Aaron Bernstein, MD, MPH

Aaron Bernstein is the Interim Director of The Center for Climate, Health, and the Global Environment, a pediatrician at Boston Children’s Hospital, and an Assistant Professor of Pediatrics.

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