Improvements on the quantification of external costs

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1 External costs of energy and their internalisation in Europe Bruxelles, 9 December 2005 Improvements on the quantification of external costs Andrea Ricci ISIS 1/16

2 Background Research so far has provided a usable body of knowledge Increasing awareness Technology and policy choices (standards, Directives, extended CBA) Internalisation BUT There are still gaps and needs for improvement in several areas Methodologies => better quality and reliability of external cost data, reduced uncertainties Coverage => additional technologies, burdens, impacts, pathways, countries Practical implementation =>integration into policy and decision making: LCA, Modelling/scenarios 2/16

3 Methodological improvements Atmospheric modelling Complexity of physical process (chemical transformation, orography, meteorology, background concentrations) Trade off between accuracy (better models) and simplicity (parametrisation) Finer representation (modelling) at local level Impacts across continents => Hemispheric modelling of airborne pollutants 3/16

4 Methodological improvements Global warming Large uncertainty of cost estimates, reflecting Uncertainty of emissions/climate change scenarios Context dependency of impacts (including e.g. discount rate) Combined approach: joint use of damage and avoidance estimates Better estimation of damage costs Inclusion of additional sectors (e.g. tourism) Inclusion of additional GHG (SF6, PFCs, HFCs) Better estimation of avoidance costs More and better scenarios (socio-economic, policy, energy sector) Inclusion of additional GHG 4/16

5 Methodological improvements Mortality and morbidity Prevailing weight in damage costs (e.g. air pollution) Mainstream approach: Contingent Valuation (CVM) Reliability and accuracy issue Value Of Life Years lost (VOLY) to measure changes in life expectancy Quality Adjusted Life Years (QALY) to measure morbidity impact More and better surveys Extension of geographical coverage (additional surveys) Additional criteria for transferability (cultural, risk perception) 5/16

6 Extension of scope and coverage Multimedia pathways Air Vs soil and water Prevailing effects on human health Multimedia chains, extension of the impact pathway(s) Exposure => food trade and consumption Biotransfers (milk, meat, fish) 6/16

7 Extension of scope and coverage Biodiversity Land use change, land take (power plants, distribution infrastructure), acidification, eutrophication Limits of Contingent Valuation (and relevance to energy production) Methodological problem: how to measure PDF (Potentially Disappeared Fraction) Costs of compensation 7/16

8 Other areas for improvement Methodologies Improvement of Exposure-Response functions Generalisation and transferability of external cost values Inter-sectoral issues associated to internalisation policies Scope and coverage External costs associated to the security of energy supply Extraction and transport (e.g. oil spills) 8/16

9 Integration into policy and decision making Long term perspective Future technologies 9/16

10 Future energy technologies hydrogen technologies fuel cells offshore wind photovoltaic concentrating solar thermal power plant biomass (including wet) wave energy geothermal BUT ALSO advanced fossil fuels advanced nuclear 10/16

11 Integration into policy and decision making Long term perspective Future technologies Dynamic LCA (time- and scenario-dependent) 11/16

12 LCA of individual technologies RS1a External costs per unit emission RS1b. SO2 NOx. fuel cell. NOx SO2 PV. NOx SO2 Time dependency. SO2 NOx. France NOx. SO2 /kg Germany NOx. /kg /kg SO2 (Excel format) Scenario dependency (Excel format) technology specific external costs per unit electricity generation /kwh 12/16

13 Integration into policy and decision making Long term perspective Future technologies Dynamic LCA (time- and scenario-dependent) Individual technologies Vs policy packages Meaningful and credible scenarios Improved modelling fully integrating LCA and external costs (better technology representation, energy trade and cross-country harmonisation, impacts of internalisation ) 13/16

14 The NEEDS Integrated Project (FP6) New Energy Externalities Developments for Sustainability 14/16

15 Is it worth the effort? Awareness => orders of magnitude Technology policy and investment priorities External costs included in e.g. CBA Small % variations in cost estimates may induce different ranking YES! Internalisation policies Fair application of the user pays principle requires maximum accuracy Avoiding (further) market distortions Differentiation 15/16

16 Thank you for your attention Andrea Ricci ISIS Istituto di Studi per l Integrazione dei Sistemi Roma /16

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