Colorado State University Researchers Work to Price Energy Based on its Cost to the Environment

The Colorado Governor’s Energy Office has awarded a group of Colorado State University researchers a grant totaling $72,520 to create a new energy pricing model that will reflect energy production’s impact on the environment.

The project, called “Designing a Technology-Neutral Benefit-Pricing Policy for the Electric Power Sector in Colorado,” will be researched by a team of CSU economics and agriculture professors to create a report outlining how energy production factors such as air pollution, water consumption, climate change and health effects should be used to price energy.

Energy technologies that are harmful to the environment such as fossil fuels would lead to an increase in energy prices to consumers under the new model. The use of solar and wind energy and other clean energy technology would decrease consumer prices.

“We are at a crossroads with energy consumption, where environmental quality must also be factored in to have a sustainable economy,” said Catherine Keske, member of the price model research team and assistant professor of soil and crop sciences at CSU.

Keske and her colleagues – Gregory Graff, assistant professor in agricultural and resource economics; Terry Iverson, assistant professor in economics; and Samuel Evans, Ph.D. candidate in agricultural and resource economics – are confident that economic incentives of clean energy will lead to innovation in the energy industry.

“Innovations in energy research will save our planet while saving our wallets,” Keske said. “As the human population grows, there is an increasing need for energy. We must ensure that energy is available to everyone while curtailing negative impacts to our environment.”

Incentives for clean energy production help provide a long-term solution for both economic and environmental issues, but in the short-term energy prices could increase.

“It is likely that there will be energy rate increases to consumers, who essentially must pay for ‘socially responsible’ energy production,” Keske said.

The price model research team will present its findings to the Colorado Governor’s Energy Office by Oct. 31, 2010. The Colorado Governor’s Energy Office will then present the report to the Public Utilities Commission for consideration to adopt the new pricing policy.

“Action is taking place at both the national and state levels to better account for the environmental attributes of electricity in the price of power,” said Matt Futch, utilities program manager for the Governor’s Energy Office. “This study will assist the state in identifying alternatives for quantifying the benefits and impacts to the environment to all conventional and renewable sources of electric power generation.”

The price model research team was created by CSU’s Clean Energy Supercluster, which also awarded the team a seed grant of $15,000 for its alternative energy pricing research. The Supercluster was created by CSU to advance clean energy technology by connecting the energy industry, researchers and the government.