By Jordan Ward and Mick Power,
Harvard Kennedy School of Government
The historical dominance of brown coal generators like Hazelwood in Victoria’s energy market is based on their very low private costs, driven by cheap and plentiful fuel and low operating costs. However, this is only part of the picture, ignoring the significant external costs that these generators impose to human health, the environment, climate change and public infrastructure.
In this paper we estimate true cost of Hazelwood in both private and social terms. As expected, we find very low private short run marginal costs, in the order of $3/MWh. We also find very high external costs. Our central case estimates of the external costs of carbon emissions and air pollutants are $64/MWh and $8/MWh respectively. This gives a social marginal cost of $75/MWh, and social average unit cost of $87/MWh – well above the current Victorian wholesale electricity price of ~$30/MWh. This means Hazelwood imposes an external economic cost on Australians in the order of $900 million per year, and over $2.5 billion in our high case estimates.
Download the report here. Hazelwood Report Social cost of carbon