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Headlines Published on 21 October 2005

Title Adding up the ‘true’ cost of energy

Just over four years ago, the EU-funded EXTERNE project presented the results of a large study proving that the cost of producing electricity from coal and oil would be double what it was if the ‘external’ costs, such as environmental damage, were to be included. New research findings and new EU projects bring this concept of external costs closer to EU policy-making, especially in the environment field.

Factoring in the ‘external costs’, such as environmental damage, of power generation. © PhotoDisc
Factoring in the ‘external costs’, such as environmental damage, of power generation.
© PhotoDisc
Society and economies need energy to function. But generating and supplying it from coal and oil, in particular, has its downside. It can cause damage to human health and to the climate in the form of global warming. It can affect ecosystems, agricultural crops and materials (i.e. buildings) exposed to the polluting by-products of unsustainable energy creation.

Through its Research Framework Programmes, the Commission has identified sustainable energy production and technologies – especially for electricity generation and for the transport sector – as highly desirable. And research in the quantification of these costs for energy informs European environment and health policies.

The ‘European Environment and Health Strategy’, the ‘Environmental Technologies Action Plan’ and the ‘Clean Air for Europe’ (CAFÉ) programme rely on sound research methods. What’s more, the ‘polluter pays’ principle, which is crucial to sustainability, can only be applied if the full costs of energy are reflected in prices. For this, a method had to be developed which accurately accounted for potential ‘externalities’ or external costs of energy production and distribution.

The original one developed and applied by EXTERNE was taken up in several related EU projects: NEWEXT, EXTERNE-POL and MAXIMA. These projects – made up of researchers, engineers, economists, and epidemiologists – are updating and improving EXTERNE’s work to come up with an even more accurate method to quantify the social and environmental damage resulting from energy consumption.

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.

CO2 price tag
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.

Air, water and soil
A model has also been developed to assess, not only the impacts of electricity on air pollution, but also on water and soil, which lead 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). Despite their high toxicity, the emitted quantities are so small that their contribution to the external cost is much lower than, for example, oxides of nitrogen (NOx), sulphur dioxide (SO2),

Power plant comparison
Furthermore, the external costs of various power plants have been calculated in some new EU Member States. Between 2000-2002, the coal and lignite power plants analysed in the Czech Republic were already comparable to the ones of Germany, France or the UK, while those in Poland had external costs up to about one and a half times more. The externalities of Slovakian and Hungarian power plants are about two to three times more than in western Europe. Cyprus, Estonia and Hungary used oil-fired plants with external costs not much higher than those of Germany or the UK.

European researchers have also looked at severe energy accidents related to power plants, including exploration, extraction, processing, distribution and transport of fuels, such as gas explosions in coal mines, dam breaks, and oil tanker accidents. During the second half of the 1990s, at the world level, energy-related severe accidents caused, on average, about 3 000 deaths a year, among which more than half were in China. Natural disasters, however, resulted in about 80 000 deaths a year in this period. In Europe, translated into monetary terms, external costs of severe accidents related to electricity are very low.

Matter that damages
These findings have been used in CAFÉ to estimate the damage caused by air pollution. Using cost-benefit analysis, the scientists estimated the damage caused by airborne particles, including NOx, SO2, volatile organic compounds and ammonia emissions. These pollutants reduce life expectancy and affect human health (heart disease, asthma, cancer) and ecosystems (acidification, eutrophication, crop damages, etc).

Willing to pay for another year?
For example, to translate the air pollution impacts into a monetary value, surveys in France, Italy and the UK investigated a thousand respondents’ ‘willingness to pay’ for a longer life. A ‘value of statistical life’ (VSL) was devised from this and which came to around €1 million. Using this as the basis, the scientists calculated the ‘central value of a life-year’ (VOLY), equivalent of €50 000. This means that, to prevent a small risk (a probability of 1/10 000) of losing one life-year due to chronic diseases, on average, people would be willing to pay a one-off amount of about five euro.

‘NEEDs’ for more
In its determination to better quantify total energy costs and support future European decisions which factor in social and environmental costs, the EU has launched a large research project – 63 partners with a budget of €7 million over four years – called NEEDS (New Energy Externalities Developments for Sustainability).

In line with the EU’s sustainable development strategy and its neighbourhood policy, NEEDS aims to evaluate (across the whole lifecycle) the full impact of energy-related policies. From this, it aims to build scenarios for long-term energy policy. It will also assess and raise the awareness of the external costs of energy technologies in central and eastern Europe, as well as the southern Mediterranean region.

In this context, a conference called ‘External costs of energy and their internalisation in Europe’, is scheduled for 9 December 2005 in Brussels.

Source:  EU

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More information:

  • Clean Air for Europe (Environment DG)

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