Edited by David Pearce
Chapter 8: Measuring Environmental Externalities in the Electric Power Sector
Patrik Söderholm and Thomas Sundqvist INTRODUCTION With the growing concerns about the impacts of air pollution in general and climate change in particular, energy policy and environmental policy have become closely integrated. A wide array of different regulations and economic incentives exist worldwide to address environmental problems associated with energy production and use, and promote the introduction of environmentally benign energy generation technologies. However, the implementation of such measures involves tough trade-offs: 1. what technologies should be considered environmentally benign, and 2. how does one identify a proper balance between the beneﬁts of energy production and the costs of environmental degradation? Since environmental costs are not generally reﬂected in market prices, there exists a need to assist market processes by assigning monetary values to these costs, and integrate them into private and public decision-making. In the early 1980s studies that attempted to assess and value environmental externalities in the electric power sector began to emerge (Schuman and Cavanagh, 1982). During the 1990s the number of externality analyses surged, in large part due to increased attention from policy-makers in Europe, with the ExternE project (European Commission, 1995; European Commission 1999), and in the US (Resources for the Future, 1994–98; Rowe et al., 1995 and Oak Ridge National Laboratory). The results and the methods used in these externality studies have been utilized as inputs in important modelling work and have served as vehicles in developing additional methodological work in the environment and energy field (Krewitt, 2002). For instance,...
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