Hidden Costs of Energy: Unpriced Consequences of Energy Production and Use
Committee on Health, Environmental, and Other External Costs and Benefits of Energy Production and
Consumption; National Research Council (2009)


Externalities associated with heat production come from all sectors of the economy – residential and commercial buildings, and industry. The vast majority of heat is generated from combustion of natural gas or use of electricity. Combustion of natural gas results in relatively lower emissions compared to emissions from coal combustion, which is the main energy source for electricity generation. Therefore, damages related to providing heat directly from natural gas combustion are much less than damages related to use of electricity for heat. The better emissions performance of natural gas for direct heat also is reflected in the externality estimates of 11 cents/MCF (2007 USD) for residential use and 11 cents/MCF for commercial use, excluding GHGs. These results do not vary much regionally, although some counties have much higher externalities than others. Assuming industrial externality is 11 cents/MCF aggregate damages from combustion of natural gas for direct heat is approximately $1.4 billion per year. The industrial sector contribution to this estimate reflects only natural gas use for heat generation. Including externalities from petroleum combustion, which is on the same scale of energy use as natural gas for industrial heat generation, would lead to a higher estimate of aggregate damages from energy use for heat Insufficient data are available to conduct a parallel analysis of industrial activities that generate useful heat. This situation could be improved with greater attention by EIA to collecting fuel consumption data by county and to provide additional resolution to emissions from disaggregated industrial activities.

The results represented here are the result of an end-use assessment, i.e., that in terms of providing heat, natural gas has lower externalities than electricity. It is not an assessment of how or where to use natural gas, which can be used for direct combustion or indirectly as a fuel for generating electric power.

NAS Study chart