Incorporating Externalities and Uncertainty into Life-Cycle Cost Analysis
Abstract
Executive Order 13514 requires federal agencies to consider economic and social benefits and costs when evaluating projects and activities based on life-cycle return on investment. The generation of energy used by federal facilities imposes social externalities, most notably air pollution, upon society. This research utilized the social costs of carbon dioxide, oxides of nitrogen, and sulfur dioxide to develop a probabilistic life-cycle full-cost analysis tool for the analysis of energy efficiency projects. The tool was then used to investigate the effects of incorporating social externalities and uncertainty into life-cycle cost analyses of energy efficiency projects. Calculation of the social benefits of air pollutant emissions reductions was found to have a statistically significant impact on the savings-to-investment ratio (SIR) of energy efficiency projects. A sensitivity analysis indicated that the SIR was most sensitive to the total initial investment of the project and the energy usage savings, but less sensitive to small changes in the values of the social benefits of air pollutants. The ranking of projects was found to be affected by the inclusion of social benefits in the calculation of the SIR.
Document Details
- Document Type
- Technical Report
- Publication Date
- Mar 01, 2012
- Accession Number
- ADA557566
Entities
People
- Alec C. Danaher
Organizations
- Air Force Institute of Technology