What

How

Who

Pays?

Accounting for externalities

April 21, 2004

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Nuclear Energy Economics and

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For any regulatory issue, four types of questions must be

resolved:

Who

Decides

?

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Nuclear Energy Economics and

Policy Analysis

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1

Success Criteria for Regulatory Intervention

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Success criteria for regulatory intervention

• Im provem ent

• Equity

• Efficiency

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2

Definition of external costs

“ Fuel cycle externalities are the costs imposed on society and the

environment that are not accounted for by the producers and consumers of energy, i.e. that are not included in the market price. They include damage to the natural and built environment, such as effects of air pollution on health, buildings, crops, forests and global warming; occupational disease and accidents; and reduced amenity from visual intrusion of plant or emissions of noise. Traditional economic assessment of fuel cycles has tended to ignore these effects. ”

-- European Commission

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Failure to take account of external costs will

result in excessive pollution

Price

Supply curve

Demand curve

Quantity

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3

• The ef fect of regulation is to internalize

– Mandatory controls on technology

– Mandatory emissions limits

• But regulations do not eliminate external costs

• In principle, want to minimize total social cost (= internal cost + residual external cost)

• In practice, external costs haven’t been considered until recently

• Now there are attempts to do so

– Resource/technology selection decisions

– Emissions taxes

– Subsidies of renewables on the basis of avoided external costs

Representativ e Externalit y Assessmen t Inputs

Units are Dollars Per Metric T on

State

Emissions

NY PSC

MA DPU

NV PSC

CA PU

SO 2

900

1650

1720

4500

NOx

1960

7170

7500

7800

VOCs

-

5840

1300

3600

CO

-

950

1000

-

Particulates

350

4400

4600

2600

CO 2

2.2

24

24

29

CH 4

-

240

240

-

N 2 O

-

4400

4600

-

Source: Economic Research As s ociates (1992), cited in R. W . Larson et al (eds),

Economics of Solar Energy T echnologies , America Solar Energ y Societ y , Dec. 1992

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Source: European Commission, ExternE Project, http:// externe . jrc . es /All- EU+Summary. htm

Note: The differences in part reflect differences in the size of the affected populations in the different countries.

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Source: European Commission, ExternE project

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5

Decimal log scale c/kWh (1988)

0.001 0.01 0.1 1 10 100 1000 2000

Coal

Biomass

Oil

Gas

Nuclear fission

PV

Onshore wind

0.001 0.01 0.1 1 10 100 1000 2000

Environmentally Related Damage Costs for Selected Electricity Supply T echnologies ( excluding global warming)

Source: A. Sterling, "Regulating the Electricity Supply Industry by V aluing Environmental Effects," Futures , Dec. 1992, pp. 1024-47; as presented in D. T oke in Ref. T -1.

stated external environmental cost (bars represent range over a variety of studies) logarithmic scale

1995 c /kWh

Onshore wind

Photovoltaics

Biomass

Hydroelectricity

Nuclear fission

Gas

Oil

Coal

0.001

0.01

0.1

1

10

100

1000

0.001 0.01 0.1 1 10 100 1000

Range of Externality Study Estimates ( including global warming)

from Ref. S-3

Source: A. Sterling, Futures , Dec. 1992, pp. 1024-47