The Social Cost of Electricity

The Social Cost of Electricity

Scenarios and Policy Implications

The Fondazione Eni Enrico Mattei series on Economics, the Environment and Sustainable Development

Edited by Anil Markandya, Andrea Bigano and Roberto Porchia

This book reports and rationalizes the state-of-the-art concerning the social costs of electricity generation. Social costs are assessed by adding to the private generation costs, the external costs associated with damages to human health, the environment, crops, materials, and those related to the consequences of climate change. The authors consider the evolution of these costs up to 2030 for major electricity generating technologies and, using these estimates, evaluate policy options for external cost internalization, providing quantitative scenarios by country and primary fuel for 2010, 2020 and 2030. While mainly focusing on European countries, the book also examines the situation in key emerging economies such as China, India, Brazil and Turkey.

Chapter 7: Assessment of Policy Instruments and Electricity Generation Technologies

Gesine Bökenkamp, Danae Diakoulaki, Olav Hohmeyer and Christos Tourkolias

Subjects: economics and finance, energy economics, environmental economics, environment, environmental economics


Gesine Bökenkamp, Danae Diakoulaki, Olav Hohmeyer, Wouter Nijs and Christos Tourkolias 7.1 INTRODUCTION All policy instruments presented in Chapter 6 aim at the direct or indirect internalisation of environmental externalities associated with the production of electricity. If environmental externalities are better internalised, there will be a more level playing field for cleaner or renewable energy technologies and relevant investments will be triggered. However, according to the basic principles of environmental economics theory, full internalisation is in many cases not evident, certainly when having large numbers of polluters and victims (Proost and Rousseau, 2007). It relies on strict assumptions, such as the existence of clear preferences and of competitive markets, which in reality are only partially or not reached. To this purpose, instead of full internalisation, two less ambitious and more realistic policy objectives have been adopted in order to serve as the basis on which policy instruments are assessed and their overall attractiveness is gauged: 1. How to produce low carbon electricity in a sustainable way? 2. How to increase the penetration of renewable electricity production? Policy instruments mainly targeting technologies using non-renewable fuels have been assessed with respect to policy objective (1), while policy objective (2) is used to assess instruments aiming to support technologies exploiting renewable energy sources. Although the distinction between the two groups is by no means exclusive, meaning that most policy instruments can significantly help to achieve both policy objectives, the adopted classification facilitates a comparative view on their strong and weak points with...

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