The Social Cost of Electricity
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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.
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Chapter 2: Electricity Supply Externalities: Energy Security

Steven Arnold, Arno Behrens, Christian Egenhofer, Alistair Hunt, Anil Markandya and Adriaan van der Welle

Extract

The Social Cost of Electricity 05/10/2010 10.10 Chap. 02 p. 77 2. Electricity Supply Externalities: Energy Security Steven Arnold, Arno Behrens, Christian Egenhofer, Alistair Hunt, Anil Markandya, Adriaan van der Welle and Bob van der Zwaan 2.1 INTRODUCTION Energy security is defined by the IEA as being the ‘availability of regular supply of energy at a reasonable price’ (IEA, 2001). For European policy makers, energy security is an important issue as private decisions on energy use may not fully take into account the costs of energy insecurity. Disruptions in supply and dramatic price increases cause macroeconomic impacts that individuals/firms do not consider. Furthermore, agents tend to underestimate the risks of disruption and the subsequent price adjustments, and there are other less tangible effects such as the psychological costs of people feeling insecure about their energy supplies. Therefore, it is important from a policy perspective to estimate the size of the external costs of energy arising from energy insecurity. There is some debate, however, about the magnitude and importance of the costs of energy security and insecurity. This chapter therefore takes a critical look at the various aspects of energy security costs in relation to electricity supply and distribution in the EU. Where relevant, predictions have been made to 2030. The chapter is organised as follows. Section 2.2 looks at the value of lost loads (VOLL), the costs incurred by interruptions in the electricity supply. Based on international published research, this section presents how these costs vary across regions and sectors,...

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