UNESCO UNESCO Desire – Net projectDesire – Net project

The externalities of energy productionThe externalities of energy production

Andrea Colosimo Andrea Colosimo Uda per lo Sviluppo SostenibileUda per lo Sviluppo Sostenibile

Centro di Ricerche Casaccia -EneaCentro di Ricerche Casaccia -Enea

andreacolosimo@yahoo.itandreacolosimo@yahoo.it

UNESCOUNESCORome, 2006 14Rome, 2006 14thth December December

THE EXTERNALITIES OF ENERGY PRODUCTION

OUTLINE

• Definitions and meanings• Implications• ExternE project• Methodology and applications• Examples of Monetary valutation

WHAT’S AN EXTERNALITY• An external cost, also known as an externality, arises

when the social or economic activities of one group of persons have an impact on another group and when that impact is not fully accounted, or compensated for, by the first group.

• Human activities like electricity generation or transport cause substantial environmental and human health damages, which very widely depending on how and where electricity was generated. The damages caused are for the most part not integrated into the pricing system.

• Negative exsternality

when an external cost is generated from a market transaction

• Positive, when an external benefit is

generated

Pollution, generated by some productive

enterprise, and affecting others who had no choice and were

probably not taken into account.

An attractive private garden may benefit

others living in the area

The internalisation of external costs is intended as a strategy to rebalance the social and environmental dimension with the purely economic one, accordingly leading to greater environmental sustainability

To support this internalisation, socio-environmental damages must first be estimated and monetized

Methodology The methodology which has been used in order to find and monetize the environmental externalities consists of the different processes                                                                      

• The identification process involves a description of all the processes in the production of, for instance, energy from windturbines, an assessment of the environmental influences and the damages these influences cause.

• The quantification process is a quantification of the identified influences, for instance the amount of CO2 emitted from a coal-fired plant.

• The effects on the environment from the quantified influences are assessed as dose-response functions. An example of this is the assessment of how the emission of SO2 results in acid rain, and how the damage from the acid rain affects forests in terms of timber lost. In the valuation process the aim is to assess the monetary value of the damages, that is estimate the price of corn (yield), the price of fresh water, the price of human life etc. All together, these assessments lead to the monetizing process of the externalities.

A serious problem in assessing the extent of the externalities is the uncertainty related to the assessment. The uncertainty is due to different conditions, as 1) insufficient knowledge of the dose-response effect, 2) the time horizon, and 3) irreversibility.

Monetizing of externalities

The monetizing of the externalities is carried out based on the quantification process, the dose-response process and the valuation of the damages. The monetizing may be expressed in the following way:

Monetizing of the externalities:amount * dose-response * price

The amount is the quantified influences for each energy technology, dose-response is the damage that the quantified influences produce per unit, and the price is the price per unit damage. An example of the monetizing:

There is a considerable difference in the way that the local and regional externalities and global externalities have been assessed. This applies to both the methodological way and uncertainty about the available data.

The local and regional externalities have an effect on medium term, where both emissions and damages are known with a reasonably certainty. Regarding the global externalities the emissions are well known, but the extent of the damages is based on long-term scenarios for the development of the concentration of CO2-emission in the atmosphere, and the rise in global temperature this will cause. The values associated with the damages are very uncertain as well, due to the long-term scenario. Because of this the total monetizing process has been divided into two categories: Local and regional externalities and global externalities.

Monetizing local and regional externalities

The quantified local and regional influences are the following:. Local •Emissions to air (particles) •Influence on residences •Increased traffic •Increased wear on roads Regional •Emissions to air, (SO2, NOx, NMVOC)

The ExternE Project, that has involved more than 50 research teams in over 20 countries, tries to value the external costs

i. e. the major impacts of economic activities referred to production and consumption

The ExternE project is the first comprehensive attempt to use a consistent 'bottom-up' methodology to evaluate the external costs associated with a range of different fuel cycles.

EXTERNE’S METHODOLOGY

The term 'fuel cycle' refers to the chain of processes linked to the generation of electricity from a given fuel. For example, the assessment of the coal fuel cycle includes evaluation of the impacts associated with:

• Construction of new plant  • Coal mining  • Limestone quarrying (for flue gas desulphurisation,

where used)<  • Transport of coal, wastes, other materials  • Power generation  • Waste disposal  • Electricity transmission. 

EXTERNE’S METHODOLOGY

Impact pathway assessment is a bottom-up-approach in which environmental benefits and costs are estimated by following the pathway from source emissions via quality changes of air, soil and water to physical impacts, before being expressed in monetary benefits and costs

A TYPICAL IMPACT PATHWAY APPROACH

1 step:

• SOURCE (specification of site and technology);• EMISSION (e.g. , kg/yr of particulates)

Two emission scenarios are needed for each calculation, one reference scenario and one case scenario. The estimated difference in the simulated air quality situation between the case and the reference situation is combined with exposure response functions to derive differences in physical impacts on public health, crops and building material.

2 step:

• DISPERSION (e.g. atmospheric dispersion models)• INCREASE IN CONCENTRATION AT RECEPTION SITES

Regarding dispersion, with NewExt, not only atmospheric pollution is analysed, but also pollution in water and soil

3 step:

DOSE RESPONSE FUNCTION (or concentration response function) – IMPACTAs a next step within the pathway approach, exposure-response models are used to derive physical impacts on the basis of these receptor data and concentration levels of air pollutants. The exposure-response models have been compiled and critically reviewed in ExternE by expert groups

4 step:

MONETARY VALUATION – COSTS

In the last step of the pathway approach, the physical impacts are evaluated in monetary terms. According to welfare theory, damages represent welfare losses for individuals.

For some of the impacts (crops and materials), market prices can be used to evaluate the damages. However, for non-market goods

(especially damages to human health), evaluation is only possible on the basis of the willingness-to-

pay or willingness-to-accept approach that is based on individual preferences.

MONETARY VALUATION – COSTS

Applications

• The ExternE methodology has been applied for a large number of European and national studies to give advice for environmental, energy and transport policies.

One of the first objectives of the ExternE program was to make a comparative evaluation of different technologies and fuel cycles for electricity generation.

FUEL CYCLES FOR ELECTRICITY GENERATION:

• fossil fuels : coal and oil technologies with varying degrees of flue gas cleaning, natural gas, centralised systems, orimulsion;

• nuclear : PWR, open and closed systems for fuel provision;

• renewable: onshore and offshore wind, hydro, a wide range of biomass fuels (waste wood, short rotice; crops) and technologies.

TRANSPORT APPLICATIONS

The application on transport externalities (road, rail, aircraft and navigation) focused on the specific requirements of emission and dispersion modelling and the extension and update of dose-response functions.

In addition to air pollution impacts, those from noise and accidents have been analysed.

• Moreover, several policy case studies and scenarios have been examined in different countries of the European Union, e.g. the use of alternative fuels in city buses or the introduction of electric vehicles.

TRANSPORT APPLICATIONS

The results are sometimes criticised by pointing at the uncertainties involved. And indeed uncertainties are large.

data uncertainty

model uncertainty, e.g. assumptions about causal links between a pollutant and a health impact, assumptions about form of a dose-response function (e.g. with or without threshold), and choice of models for atmospheric dispersion and chemistry

uncertainty about policy and ethical choices, e.g. discount rate for intergenerational costs, and value of statistical life;

uncertainty about the future e.g. the potential for reducing crop losses by the development of more resistant species;

idiosyncrasies of the analyst e.g. interpretation of ambiguous or incomplete information.

to quantify the social and environmental damage resulting from energy consumption:

• Impact of electricity on air pollution

• Impact of electricity on Water and soil:• CO2 price

• Impact of electricity on air pollution: results show that the total air pollution in the EU-25 countries reduces the life expectancy of the population considerably. According to the scientists, in 2000, air pollution caused about 3 million years of life lost in the whole of Europe. This corresponds to more than 300 000 premature deaths per year. Thus, polluting power plants in the EU-25 cause health impacts, including morbidity, equivalent to tens of billions of euro every year.

• Water and soil: the impacts of electricity on water and soil pollution leads to significant human exposure through the food chain.

Preliminary damage costs have been estimated for the most toxic metals (lead, arsenic, cadmium, chromium, nickel and mercury) and for certain organic pollutants (including dioxins).

• CO2 price: monetary values have also been attributed to global warming and damage to ecosystems by analysing decisions about environmental policy and the value ascribed to such damage in the decision process. For instance, based on the Kyoto Protocol targets, costs of between €5-22 per tonne of emitted CO2 – with a central value of €19 per tonne of CO2 – have been determined for the period 2008-2012.

Aim of theExternE methodology helps to take into account all externalities in a consistent way when making decisions

- Investment decisions- Technology assessment (subsidies,

research support)- Consumer decisions (e.g. by adjusting

prices)- Cost-benefit analyses, esp. for

environmental and health regulation- Green accounting

• Gaps and uncertainties exist, however will be more and more reduced due to ongoing research

• More information on the ExternE website:

www.ExternE.info

As example we show

The main results of the assessment of the external costs for the different energy production technologies, calculated in a danish research

The energy technologies which have been assessed are the following: •A 500-kW wind turbine and a smaller wind park of 5 MW, comprising 10 wind turbines. •A 350-MW coal-fired conventional plant with desulphurisation plant and de-nox burners. •A decentralized CHP plant with fluid-bed gasification based on wood chips followed by a gas turbine and a steam turbine. The power rating is 40 MW. •A CHP plant based on natural gas with a power rating of 45.6 MW.

The estimates are average annual over a period of 50 years (year 1995 - 2045), and the numbers differ therefore from the above-mentioned global and local/regional externalities, where the global externalities are for the year 2045. The average has been calculated on the assumption of a linear connection between the CO2 concentration for the year 2045, increase in temperature and the damage hereby.

This assumption might tend to overestimate the average yearly damage, if the actual damage function between CO2 concentration and damage is exponential. The assumptions are based on IPCC estimates for a doubling of the concentration of CO2 in the atmosphere.

By far the largest external costs are related to the emission of greenhouse gases, especially CO2, accounting for more than half of the total damage.

This is due to the large economic consequences of the rise in temperature related to the greenhouse gases, e.g. rising sea level, reduced yield and increasing morbidity. The effects of local and regional pollution as, for instance, acid rain play a smaller role. This fact points in the direction of the need for further research into the relationship between rising CO2 concentration, temperature and economic consequences.

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