Coal-fired power stations will have to cough up for the costs of their pollution.


The European Environment Agency estimated the costs of industrial air pollution in the EU at between €329 and €1,053 billion in the four years to 2012. For the UK alone, the figure was about £32-£105bn, of which a large fraction came from coal fired power plants. The higher figure is about 1.5% of annual GDP.

And, perhaps surprisingly, most of this cost isn’t ascribed to the long run impact of adding CO2 to the atmosphere. No, the real culprits are the tiny particles (‘PM’) and polluting gases that cause respiratory and cardiac illness and early death. In the case of Drax power station – of which more below – the expected impact of its CO2 output is less than a quarter of its overall effect from 2008 to 2012. The more we hear about coal, the nastier the immediate impact on human health seems.

You can quibble with the EEA numbers. It uses figures of between £7.50 and £30 a tonne for CO2 emissions and ascribes costs to the other pollutants that reflect their likely impact on life quality and life expectancy. Although it is at pains to stress otherwise, the higher cost estimates from the EEA reflect very high values on an extra year of human life.

But the crucial point is this: even at lower levels, these estimates mean that proper accounting will make burning coal (and oil) for power uneconomic. These figures are the strongest possible support for the campaign for the divestment of coal mines and power stations.

Possibly the best way of showing this is to look at the pollution costs imposed on the UK by its largest single source of electricity, Drax power station in Yorkshire, which generates about 8% of the country’s power. Drax was very largely fuelled by coal until 2012 when it began a long switch to biomass in the form of wood pellets. It is also the leading light in a consortium that is attempting to build the one of the UK’s first two carbon capture and storage (CCS) schemes.

Look at the EEA figures and you can see why Drax is so keen to clean up its operations. For 2008-12 it sits at number 5 on the European list of shame. Its pollution is estimated to have cost, primarily in the form of shortened lives, between £700m and £1,600m a year. That’s between £11 and £26 per person in the UK.

Another way of expressing the number is to compare it with the value of Drax’s electricity output. That figure is about £1,800m a year. So, at the higher estimate, the cost of pollution is almost as high as the financial value of the power station’s output. To cover the cost of the CO2 and other pollutants, Drax would have to add between 40% and 90% to the cost of its electricity. Coal-generated electricity suddenly doesn’t look as cheap.

There’s another way of looking at these numbers. What is the stock market value of the entire Drax business, which is a separate public company listed on the London Stock Exchange? Today, that number is about £2,000m. In its old incarnation (prior to switching to burning wood pellets), Drax’s yearly pollution cost was between a third and four fifths of its market value. If the shareholders were ever forced to bear the full environmental cost of its output, they would be handing over most of the value of the company to those affected by the unseen pollution within three years, even if we use the EEA’s lower figures.

The argument for divesting shares of companies using coal cannot be put more clearly. At some point in the future those who mine and burn coal will be forced by regulators or courts or governments to cough up (to use an appropriate metaphor) for the full cost of what they do. When that happens, the entire value of the assets will disappear overnight.

Just for full accuracy, it’s worth pointing out that the UK’s second most polluting power station, Longannet in Scotland, would actually be even less economic if the full cost of pollution was included in its price. And, as far as I know and unlike Drax, Longannet isn’t switching to wood or capturing its emissions via CCS.

A few background numbers

Approximate value of Drax’s electricity output per megawatt hour          £65*

(Underlying assumptions – Drax output 27 TWh, CO2 output per MWh, 784 kg, total sales value £1,800 a year for 2008-2012)                                         

Fully costed, Drax’s coal output needs to have been priced at between £91 and £124. These prices are greater than the cost of onshore wind, nuclear and large scale PV. They are probably lower than burning biomass.