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image European Research News Centre > Environment > Revealing the hidden costs of energy
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image image image Date published: 07/11/02
  image Revealing the hidden costs of energy
RTD info 35
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  Europe has made a determined choice towards a policy of sustainable development. To be effective, this must involve a review of economic calculations to include previously ignored costs. If these 'externalities' were to be taken into account in the energy field, the price per kWh of fuel of petroleum origin would double. The ExternE, NewExt and ExternePol projects have developed a remarkable methodology which serves as a reference for this new kind of cost calculation.
   
     
   

Known as externalities, these hidden costs relate mainly to health and environmental expectations. Burning one tonne of coal at a fossil-fuelled power station, for example, results in the emission of many substances into the atmosphere. These have various effects within the perimeter around the emission point, including an increase in respiratory diseases, deterioration of buildings and lower agricultural production.

For the community these negative effects are costs which are not included in the energy bill as such. Some feed through to quantifiable sums in other sectors, such as health care. Others are more 'virtual' in nature but can be estimated nevertheless in terms of the price citizens would be prepared to pay to avoid them. There is a growing urgency to make a rigorous evaluation of all these externalities as they are a valuable decision-making tool when making major political and economic choices in the field of energy policy.

The impact pathway

Although the principle may seem obvious, implementation is particularly complex. It began in the early 1990s at a time when the term sustainable was being used increasingly in political circles without anyone being able to lend it any real scientific substance based on sound principles of evaluation. The ExternE – External Costs of Energy – project was originally launched by a consortium of European and American researchers.(1) The aim was to define energy externalities – and more precisely electricity production externalities – for each of the available sources: wind, solar, nuclear, biomass, coal, oil, natural gas, and hydroelectric. 'The project required the co-operation of many specialists from different disciplines: economists, physicists, chemists, epidemiologists and ecologists,' explains Ari Rabl, one of the ExternE directors and a researcher with the Energy Centre at the Ecole des Mines in Paris. 'It was a fascinating exercise intellectually as everybody had to become something of an expert in everything to understand exactly what their colleagues expected of them.'

The method developed, known as the impact pathway, is a logical and systematic approach. It estimates the cost of each and every stage in electricity production, bar none. In the case of coal, for example, this involves evaluating the impact of building a new thermal power station, mining the raw material and quarrying the limestone (when used for flue gas desulphurisation), transporting the coal, wastes and other materials, the electricity generation itself, waste disposal and electricity transmission.

Variable geometry totals

'A sound evaluation of impact in monetary terms requires knowledge which has only been acquired over the past decade and without which ExternE would not have been possible,' stresses Ari Rabl. 'We have used recent epidemiological data to asses the impact on health – in terms of the number of persons affected and number of years of life lost – of certain pollutants. We have also used models for the dispersion of pollutants in the air, at local and European level.'

The mass of data which the ExternE methodology took as a basis for its conclusions is impressive. They range from technical elements, such as emission levels for each pollutant (several dozen were taken into account), to meteorological models, which are essential for assessing dispersion, and include demographic data and surveys of individual value systems so as to quantify notions such as impaired health.

After eight years of study involving dozens of researchers throughout the Union, dating from 1998, ExternE has drawn up an inventory per country and per energy. The picture which emerges is a varied one.(2) In Germany, for example, the external cost per kWh produced by wind power is 0.05 cents, compared with 5-8 cents per kWh for electricity produced by an oil-burning power station. Throughout Europe, the external costs of the nuclear kWh – ten times less than for coal – are low, ranging from 0.2 to 0.7 cents.

As a rule, the differences between countries are considerable, reflecting differences in the technology used as well as demographic differences. Researchers consider that the external costs of electricity production are equivalent to 1-2% of Europe's GDP. They also believe that if these costs were billed, the price per kWh of energy produced from oil or coal would double.

ExternE follow-up

These results, as well as the solid interdisciplinary and scientific methodology used to compile them, are the first of their kind to be published and have already been accepted as a reference for energy policy in the medium to long term. At the same time, work is continuing on further refining this methodology under an ExternE follow-up project known as NewExt or, to give its full name, New Elements for the Assessment of External Costs from Energy Technologies. This aims to refine certain parameters, in particular the evaluation of the monetary costs of mortality due to atmospheric pollution. The externalities will also be extended to include areas not yet taken into account, such as damage to soil and water (acidification and eutrophication, dioxin emissions, influence of each energy on global warming, etc.).

Researchers are also busy exploring the externalities resulting from the risk of technological accident. Previously these were calculated principally for nuclear energy, but given the high level of safety and the high degree of 'improbability' of an accident at a European nuclear power station, they proved to be very low. To provide a balanced picture for all energies, however, the probability and costs of catastrophes such as oil spills or the bursting of dams should also be taken into account.

Will the NewExt results – available next year – change the picture presented by ExternE? 'It is still too early to say,' says Alexander Gressmann of Stuttgart University, one of the NewExt coordinators. 'In a sense, the more we try to quantify new and ever more complex externalities, the more we cause the hidden costs to rise. But on the other hand, by refining our calculation instruments (statistical tools for evaluating mortality, for example) we reduce other amounts.'

How does it translate into policy?

The study of externalities involves a continuous process of updating as progress is made in the various disciplines involved. This will be one of the tasks of ExternePol which, from autumn 2002, will also be building on the work begun by ExternE. 'We want to increase the reliability of results, such as by incorporating new and better models. We also want to extend the methodology so that it can be applied to new problems,' explains Ari Rabi, who will be the project coordinator. ExternePol (as its name suggests) will also try and improve the communication of the results obtained over the past decade to policy-makers and ensure that they can use them as a tool in the service of sustainable development.

One possible policy measure would be to tax the energy sources most damaging for society in accordance with the costs they create. However, this would mean a rise in energy prices producing damaging effects in other areas of the economy; it is also difficult to apply a homogenous tax throughout the EU. Another approach would be to subsidise energies which use clean technologies. A Community text adopted in February 2001, for example, authorises 'Member States to grant operating subsidies to new installations producing renewable energy, calculated on the basis of external costs'. These subsidies are currently limited to 5 cents per kWh.

'We are seeking to change mentalities,' stresses Ari Rabl. 'This process takes time. But a number of countries have expressed interest in our work, dozens of studies have adopted our method and our results have been taken into account when drawing up European directives. Personally, I have even been approached by several industrialists seeking an externalities calculation for their plant. These are all signs that our work is gaining recognition.'

(1) The Americans pulled out of the project in 1995.
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(2) The results are available at http://externe.jrc.es
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ExternE Transport

Although ExternE focused on electricity production, some of the results obtained can be used for other evaluations. A group of researchers, led by Peter Bickel of Stuttgart University, decided to apply the impact pathway methodology to transport. A series of case studies were carried out on road transport (using various fuels), as well as on waterways and rail transport in a number of countries. 'The impact on health dominates the quantified damage in our study, in particular mortality due to primary and secondary particles such as nitrates and sulphates. We have also established that population density in the vicinity of roads is a determining parameter for the scale of the impact,' believes Peter Bickel. The researchers were rather surprised to find that carcinogenics emitted by vehicles are less harmful than particles, mainly emitted by diesel engines. A comparison of the externalities of freight transport by road and rail shows that the former amount to between €0.04 and €0.3 tonnes/kilometre and the latter between €0.001 and €0.009 tonnes/kilometre.

http://www.feem.it/gnee/terapap/bickel.html

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The EcoSense software

The ExternE team has developed EcoSense, an externalities evaluation software of potential interest to a number of users. The principle is simple: once the damage caused by one tonne of sulphur dioxide has been calculated, for example, this figure can then be used rapidly by relating it to the population exposed. Brazil and China are among the countries which have started studying their externalities using EcoSense. It has also been used by the electricity company EDF (Electricité de France). The researchers plan to update the software regularly and make it more readily available.

http://externe.jrc.es/Method+EcoSense.htm

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The value of years lost

In the field of health and the environment, the NewExt researchers have replaced the traditional concept of a calculation based on the Value of Statistical Life with an evaluation of the Value of Life Year Lost. 'We see this approach as very pertinent,' explains Alexander Gressmann. 'Atmospheric pollution usually has the effect of reducing average life expectancy by several months due to the appearance of certain chronic diseases.' These cannot be calculated in the same way as fatal accidents – such as road accidents – which on average shorten a life by several decades. 'These concepts may seem cynical for non-economists,' concludes the NewExt coordinator. 'In reality, they are simply tools designed to express the economic choices of society as accurately as possible.'

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To find out more:

Official ExternE site with 1998 results
Another site with a wealth of information

 

The external costs of electricity production in Europe vary from one European country to another depending on technological and demographic differences. In Germany, for example, the external cost per kWh produced by a windmill is 0.05 cents compared with between 5 and 8 cents for electricity produced by an oil-fuelled power station.

The external costs of electricity production in Europe vary from one European country to another depending on technological and demographic differences. In Germany, for example, the external cost per kWh produced by a windmill is 0.05 cents compared with between 5 and 8 cents for electricity produced by an oil-fuelled power station.

 

The risk of technological accident - oil spills, burst dams, etc. - is also included in these calculations. Primarily taken into account for nuclear power, these costs are low as a result of the existing safety measures.

The risk of technological accident – oil spills, burst dams, etc. – is also included in these calculations. Primarily taken into account for nuclear power, these costs are low as a result of the existing safety measures.


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