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The aim of this report is to determine the costs associated with the externalities of #2 fuel oil, natural gas, biomass, and renewable fuel oil. Externalities occur when a market transaction imposes costs on parties external to that transaction. These four energy sources are options Bates College is considering for heating its campus, either through the central steam plant or separate boiler systems. Evaluating the costs of these externalities will provide a picture of the true cost of energy, allowing the school to make a decision with complete information regarding the implications of using these energy sources.

The methodology for estimating the cost of externalities differs for the two groups of energy sources. The values for #2 fuel oil and natural gas largely follow the methodology of the ExternE report of the European Commission, in which empirical modeling and case studies provide for the estimates of various externalities of fuel sources used across Europe. The findings of the ExternE report are supplemented with outside literature in order to confirm that the ExternE methodology is valid, and to provide additional externality cost information lacking in the report. This study finds that there are a range of externality costs associated with the use of #2 fuel oil and natural gas, from the costs of health effects to atmospheric pollution.

Biomass and renewable fuel oil follow similar methodologies in terms of evaluating the costs of externalities. Various sources of literature are used to determine the possible mechanisms in which externalities may exist through the use of these energy types, and to determine their impact in terms of a monetary value. As these two energy sources are very recent additions to the market, reports beyond those available in the academic literature are also relied upon to provide information. One of the major contributors to externalities associated with renewable fuel oil is the Pacific Northwest National research Lab (PNNL). This report finds that the externality costs associated with biomass and renewable fuel oil are minimal compared to the other energy sources, as the primary externality costs are associated with the transportation of these materials.

The results of this study are reported as lower bounds for fossil fuel externalities and upper bounds for renewable fuel externalities. By reporting the renewable fuel externalities as upper bounds, we can show the worst-case scenario associated with renewables. This will provide a contrasting figure to our minimum conservative values for fossil fuels that show the best-case scenario. These values are estimates due to our understanding that certain impacts cannot be valued monetarily given the complexity of the relationships among these energy markets, the economy, and the environment.