by Tim McDonald, MBA ’15
This article was written in response to an EDGE Seminar on “The Economics of Waste” on Feb. 26, 2014 at Duke University’s Fuqua School of Business.
Waste-to-energy (WTE) technology has the potential to minimize air and groundwater pollution by offsetting consumed fossil fuels and landfill use. A recent report from the Joint Institute for Strategic Energy Analysis demonstrates that WTE energy production leads to a substantial reduction in carbon dioxide, nitrous oxide, and sulfur dioxide over most traditional fossil fuels. Further, the report finds that municipal solid waste (MSW) combustion is a better alternative than landfill disposal in terms of net energy impacts and greenhouse gas emissions. WTE also reduces the need for landfills and reduces overall MSW transportation requirements—meaning less valuable land and capital are needed to dispose of waste (in addition to less operational expense).
But because of a myriad of factors, WTE technology implementation struggles to be economically feasible in the U.S. Inexpensive land (for siting new landfills) and low natural gas prices make it difficult for WTE to compete with other waste disposal and energy generation strategies. While these factors may persist for the foreseeable future, the internalization of specific externalities could make WTE much more appealing. In fact, I assert that given the tremendous benefits WTE offers, private firms as well as federal and local government entities must endeavor to incorporate the value of these externalities into their feasibility analyses to increase WTE adoption.
The greenhouse gas emissions created by other energy generation technologies are manifestations of externalities without assigned value. In the current U.S. policy and economic context, these factors have not been internalized and WTE has limited economic feasibility. In contrast, Sweden embraces the use of WTE technology: 49% of all household waste was converted to energy in 2009. While several differences explain the variation between the two nations’ energy profiles, Sweden’s national policies place tremendous value on carbon emissions (through a carbon tax) as well as reduced dependence on imported fossil fuels and energy assurance. While the former mechanism may prove implausible in the U.S., the latter already exists: public and private organizations are placing increasing value on energy assurance separate from the public provision of electricity.
In particular, the Department of Defense’s (DOD) efforts to internalize externalities has beget the “fully burdened cost of energy,” wherein the price of a gallon of fuel, for instance, includes the composite risk of delivering it to the forward edge of the battlefield. These risks account for the threat of roadside bombs and the cost of manpower redirected to convoy security from other, high-priority combat missions. By adding the cost of these burdens to the commodity price of energy, namely diesel and jet fuel, DOD has lowered the relative costs of other energy sources, to include MSW combustion. As a result, WTE has become a viable form of energy generation and has been employed both overseas and at domestic installations. At these locations, military forces have gained a more productive and healthier alternative to burning waste in open pits; and they have also lessened their dependence upon fuel otherwise imported at tremendous cost to national and human treasure.