Valuation of Water and Emissions in Energy Systems Luis F. Fuentes-Cortes ‡ , Yan Ma † , Jose M. Ponce-Ortega ‡ , Gerardo Ruiz-Mercado ¶ , Victor M. Zavala †,1 ‡ Department of Chemical Engineering, Universidad Michoacana de San Nicolas de Hidalgo, Morelia, Michoacan, Mexico, 58060 ¶ Office of Research and Development, National Risk Management Research Laboratory, U.S. Environmental Protection Agency, 26 West Martin Luther King Drive, Cincinnati, Ohio 45268, USA † Department of Chemical and Biological Engineering, University of Wisconsin-Madison, 1415 Engineering Dr, Madison, WI 53706, USA Abstract Pricing, incentives, and economic penalties (monetization) are common approaches to control and improve water usage and total direct greenhouse gas emissions (externalities) of energy and other industrial systems. We discuss that homogenous pricing for externalities provides limited flexibility for controlling and improving environmental impacts as different systems are affected differently by externalities. We use trade-off analysis and scalarization techniques to determine marginal prices for water and carbon by taking into account the actual physical and technical limits, stakeholders, and real-time conditions of the system at hand. We demonstrate that high water and emission prices might be needed to control and improve the current system of fixed price for externalities. In addition, a combined heat and power (CHP) system providing hot water and electricity to a real residential building complex is undertaken as case study to demonstrate and describe these concepts. For this CHP system, we found that carbon prices should be increased by a factor of 14 and water prices by a factor of 217 to achieve an optimal compromise between cost, water use, and emissions. Our results point towards the need to consider alternative pricing schemes such as resource bidding (as is done with electricity) that better capture technology trade-offs and push systems towards their efficiency limits. Keywords combined heat and power; real-time operations; water and emissions; trade-offs; biogas 1 Introduction Emerging energy systems such as combined heat and power (CHP) installations have much higher resource utilization efficiencies than conventional systems and can help mitigate 1 Corresponding Author: victor.zavala@wisc.edu. Publisher's Disclaimer: Disclaimer: The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of the US Environmental Protection Agency. EPA Public Access Author manuscript Appl Energy. Author manuscript; available in PMC 2019 September 18. About author manuscripts | Submit a manuscript Published in final edited form as: Appl Energy. 2018 ; 210: 518–528. doi:10.1016/j.apenergy.2016.09.030. EPA Author Manuscript EPA Author Manuscript EPA Author Manuscript