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Indicator Assessment
The external costs that arise from the environmental impact of electricity production are significant in most EU countries and reflect the dominance of fossil fuels in the generation mix. In 2006 the average external costs of electricity production in the EU were between 1.8-5.8 Eurocent/kWh. Despite progress, these external costs are still not adequately reflected in energy prices. Consumers, producers and decision makers do not therefore get the accurate price signals that are necessary to reach decisions about how best to use resources.
External costs of electricity production in the EU, 1990 and 2006 - low estimate
Note: The external costs in the above two figures are based upon the sum of three components associated with the production of electricity: climate change damage costs associated with emissions of CO2; damage costs (such as impacts on health, crops etc) associated with other air pollutants (NOx, SO2, NMVOCs, PM10, NH3), and other non-environmental social costs for non-fossil electricity-generating technologies
ExternE-Pol (2005), CAFE, EEA, Eurostat, RECaBS (2007)
External costs of electricity production in the EU, 1990 and 2006 - high estimate
Note: The external costs in the above two figures are based upon the sum of three components associated with the production of electricity: climate change damage costs associated with emissions of CO2; damage costs (such as impacts on health, crops etc) associated with other air pollutants (NOx, SO2, NMVOCs, PM10, NH3), and other non-environmental social costs for non-fossil electricity-generating technologies
ExternE-Pol (2005), CAFE, EEA, Eurostat, RECaBS (2007)
Estimated average EU external costs for electricity generation technologies in 2006
Note: See additional information for notes
ExternE-Pol (2005), CAFE, EEA, Eurostat, RECaBS (2007)
The external costs used to calculate this indicator are based upon the sum of three components: climate change damage costs associated with emissions of CO2; damage costs (such as impacts on health, crops etc) associated with other air pollutants (NOx, SO2, NMVOCs, PM10, NH3), and other non-environmental social costs for non-fossil electricity-generating technologies. Based on the methodology used in this fact sheet (see e.g. note to figure 1 and metadata section), the external costs of electricity production have fallen considerably between 1990 and 2006 in almost all Member States, despite rising electricity production. However, the average external costs still represented between 1.8-5.8 Eurocent/kWh in the EU in 2006. These costs are significant and reflect the continued dominance of fossil fuels in the generation mix.
External costs for electricity are those that are not reflected in its price, but which society as a whole must bear. For example, damage to human health is caused by emissions of particulate matter (including both primary particles and secondary aerosols). SO2, NOX and VOC emissions also lead to human health impacts (which are considered to be the largest externality) through the formation of secondary pollutants. NOX and VOC emissions have health impacts through the formation of ozone. SO2 and NOx emissions form secondary particles in the atmosphere (which have similar effects to primary PM). There are also costs associated with non-health impacts. SO2 is the main pollutant of concern for building-related damage, though ozone also does affect certain materials. The secondary pollutants formed from SO2, NOX and VOC also impact on crops and terrestrial and aquatic ecosystems.
Damages from climate change, associated with the high emissions of greenhouse gases from fossil fuel based power production, also have considerable costs. However, given the long-time scales involved, and the lack of consensus on future impacts of climate change itself, there is considerable uncertainty attached to the damage costs. The uncertainty in the costs of climate change (external costs) concerns not only the 'true' value of impacts that are covered by the models, but also the uncertainty about the impacts that have not yet been quantified and valued. Moreover, none of the current estimates of the external costs include all the effects of climate change.
The external costs of CO2 emissions must thus be interpreted with care. Watkiss et al (2005) stress that there is no single value and that the range of uncertainty around any value depends on ethical as well as economic assumptions. The damage factors for CO2 used in this factsheet range from 19 EUR/t CO2 (low estimate, based on ExternE-Pol) and 80 EUR/t CO2 (high estimate, based on Watkiss et al., 2005). These two values are common to all countries.
The overall level of these externalities will depend upon a number of factors including:
Environmental and social externalities are highly site specific and so results will vary widely even within a given country according to the geographic location. Results from the CAFE (Clean Air for Europe Programme) have highlighted that the highest damages are found from emissions in the central parts of Europe and the lowest from countries around the borders of Europe. This reflects variation in exposure of people and crops to the pollutants of interest - emissions at the borders of Europe will affect fewer people than emissions at the centre of Europe, due to the degree of urbanisation and population density. In addition, the analysis did not account for non-European bordering countries.
Traditional fossil systems (coal, oil and to a lesser extent natural gas) exhibit the highest external costs for electricity generating technologies, in the range of 1.1 Eurocent/kWh (for advanced gas technologies using the lower bound estimate of damage costs Eurocent/kWh) to 25.9 Eurocent/kWh (for traditional coal-lignite plants using the higher bound estimate of damage costs). These fuels accounted for about 54 % of all electricity production in 2006 (see EN27 for more details). The majority of these external costs occur during the production of the electricity itself (i.e. from the burning of coal and release of specific pollutants to air, etc), although there is a small component associated with other parts of the fuel cycle (e.g. due to the mining and transport of the fuel). Co-generation reduces external costs and gas technology cogeneration gives external costs that are only two-thirds of lower than diesel technology. The introduction of advanced technologies (such as combined cycle (CC) and pressurised fluidised bed combustion (PFBC) can also reduce substantially the external costs of fossil energy systems. Renewable energy shows the lowest damages per unit of electricity.
Nuclear external costs are in the range 0.5-0.7 Eurocent/kWh. However, these external costs factors have to be treated with caution. There are small amount of emissions of CO2 and air pollutants associated with nuclear power but there are difficulties in assessing the risk and damage from nuclear accidents (in operation and waste disposal) associated with radioactive release (see footnote to Figure 2 for further information).
The fall in external costs observed over the period 1990 to 2006 was primarily due to a combination of (see EN09 for further information):
In some EU countries, the decline in the external costs per unit of electricity produced was mainly the result of the closure of old and inefficient coal-fired plants and their replacement with either newer, more efficient coal-fired plants or new gas-fired plants and the implementation of emission abatement measures. In Eastern Europe this was triggered primarily by economic restructuring and a decline in heavy industry (in Germany this occurred in the early part of the 1990s due to reunification). By contrast, in the UK it was due primarily to economic factors whereby gas became the fuel of choice for new plant. This also led to higher overall generating efficiencies from the use of combined cycle gas turbines (CCGT).
Many of the new Member States still have some of the highest external costs on a per kWh basis. The externalities also vary between the EU-15 Member States, as a result both of the fuel mix and location. Higher damages typically occur from emissions in countries in Western Europe because of the large population affected. Countries with lower mean externalities are Austria, Finland and Sweden, reflecting their low population density (in the two latter) and greater use of nuclear and renewable energy and, in particular, hydropower. Luxembourg is also particularly low due to a high share of imported electricity, with the remainder provided largely by natural gas and renewables.
At present, energy prices and taxation often do not reflect the full extent of external costs. However, progress is being made; with the absolute level of some taxation increasing (see EN31 and EN32) and the introduction of the EU emissions trading scheme (Directive 2003/87/EC) putting a price on carbon dioxide emissions (for electricity production and large parts of industrial emissions in the EU). Full cost pricing (incorporating all environmental costs) is a long-term goal, but there are difficulties, notably the lack of consensus about the acceptability and validity of damage cost values, and the complex interaction with the existing policy landscape. In particular, the interaction with energy subsidies, which distorts the absolute and relative prices of different fuels (see EN34 for more details). It should also be highlighted that taxes or other economic instruments are not the only way to internalise external costs; regulation is a way of internalising these costs as it may have a feedback on production costs.
The external costs are based upon the sum of three components associated with the production of electricity: climate change damage costs associated with emissions of CO2; damage costs (such as impacts on health, crops etc) associated with other air pollutants (NOx, SO2, NMVOCs, PM10, NH3), and other non-environmental social costs for non-fossil electricity-generating technologies.
Marginal damage cost factors (cost in Euro per tonne of pollutant) are taken from ExternE-Pol (2005) in the case of CO2 (low estimate) and from CAFE (Clean Air for Europe programme) in the case of the other air pollutants. The damage factors for CO2 (high estimate) are taken from Watkiss et al. (2005). Marginal damage cost factors in the case of CO2 are not country specific (i.e. all countries share the same marginal factors for CO2, one for low, 19 Euro/tonne and one for high 80 Euro/tonne). Marginal damage cost factors in the case of other pollutants are country specific. For the low estimate, the low damage factors are then applied to the level of emissions by pollutant in each Member State in 1990 and 2006 to produce a damage cost in million Euro for each pollutant for each year. Summing up the damage costs of each pollutant gives the total damage costs in each Member State for each year. The same procedure is repeated to calculate the high estimate.
The other non-environmental social costs for nuclear and non-thermal renewables are taken from ExternE-Pol (2005), and for nuclear accidents from RECaBS (2007). These provide a eurocent/kWh external cost for different types of electricity technologies, which are multiplied by the quantity of electricity produced from each of these technologies, in each Member State, for 1990 and 2006 to produce a damage cost for that year in million euro. This cost is added to that associated with the emissions of CO2 and other air pollutants and the total is then divided by the overall electricity production for that year in each Member State to produce an estimate (low and high) of the external costs associated with each unit of electricity generation.
No units have been specified
The recent EU Green Paper on Market Based Instruments for environment and related policy purposes (European Commission, 2007) emphasised the need to improve price signals, by giving a value to the external costs and benefits of economic activities, so that economic actors take them into account and change their behaviour to reduce negative - and increase positive - environmental and other impacts.
The Sixth Environmental Action Programme 2002-2012 (6th EAP, 2002) also stresses the need to internalise external environmental costs. It suggests a blend of instruments that include fiscal measures, such as environment-related taxes and incentives, and a phase-out of subsidies that counter the efficient and sustainable use of energy.
A particular policy is the Community Framework for Taxation of energy products and electricity (Directive 2003/96/EC replacing 92/81/EEC). Its aim is to improve the operation of the internal market by reducing distortions of competition between mineral oils and other energy products. In line with the Community's objectives and the Kyoto Protocol, it encourages more efficient use of energy so as to reduce dependence on imported energy products and limit greenhouse gas emissions. Some Member States, in particular more recent accession countries, applied for partial or total exemption on certain products, but these exemptions generally expired in 2006. It also aims to make it possible to restructure national taxation systems and achieve objectives in the environment, transport and energy fields while complying with the rules governing the single market. The European Council (EC, 2008) has recommended that the Energy Taxation Directive be reviewed to bring it more closely in line with environmental and climate change related policies. The Commission Green Paper on market-based instruments for environment and related policies (COM (2007) 140 final) outlines some of the proposed changes to the Energy Taxation Directive in more detail.
As well as this, CO2 emissions from combustion plants larger than 20MW emissions are covered by their participation within the EU Emissions Trading Scheme (Directive 2003/87/EC). In addition to helping to internalise, at least some portion of, the external costs of climate change from power generation it will also help promote a shift to less carbon intensive fuels for electricity generation, as well as improvements in generating efficiency. A number of changes and extensions to the ETS (including a binding target of a 21% emission reduction of greenhouse gases in 2020 relative to 2005 for large sources of CO2-emissions), have been proposed as part of proposed package on climate change and energy (COM(2008)16, 17 and 19).
Although not aimed primarily at internalising external costs, other EU policies have and will continue to help lower the overall external costs of electricity generation. The Large Combustion Plant Directive (2001/80/EC) aims to control emissions of SOx, NOx and particulate matter from large (>50MW) combustion plants and hence favours the use of higher efficiency CCGT and the use of pollution abatement technology. Smaller plants are covered under the IPPC Directive (96/61/EC) which also provides emissions limits for particular air pollutants, and emphasises the use of Best Available Techniques Not Entailing Excessive Cost. As part of a recent review of industrial emissions legislation the Commission has proposed (COM/2007/0844 final) a single new Directive, which aims to recasts seven existing Directives related to industrial emissions (including those above) into a single clear and coherent legislative instrument.
No targets have been specified
No related policy documents have been specified
Data source(s):
Methodology and frequency of data collection:
CO2 emissions data are annual official data submission to UNFCCC and EU Greenhouse Gas Monitoring mechanism. Combination of emission estimates based on volume of activities and emission factors. Recommended methodologies for data collection are compiled in the IPCC Guidelines for National Greenhouse Gas Inventories, supplemented by the 'Good Practice Guidance and Uncertainty Management in National Greenhouse Gas Inventories' and the UNFCCC Guidelines.
SO2 and NOx emissions data are annual country data submissions to UNECE/CLRTAP/EMEP. Combination of emission measurements and emission estimates based on volume of activities and emission factors. Recommended methodologies for emission data collection are compiled in the Joint EMEP/CORINAIR Atmospheric Emission Inventory Guidebook, EEA, Copenhagen.
Energy data collected annually by Eurostat.
Methodology of data manipulation:
The three components of the external cost shown in the indicator are:
The 3 components are summed to produce an overall damage cost for each Member State. These are then divided by Eurostat's '107000 total gross electricity generation' to produce an external cost in Eurocents/kWh.
Strengths and weaknesses:
A full set of marginal air pollutant damage cost factors are not available for Cyprus, Malta, Bulgaria and Romania and so these countries have been omitted. Also, as mentioned in section 6) above, the availability of PM2.5 emissions data under category 1A1a is poor compared to PM10, so the PM10 emissions were applied to a modified PM2.5 marginal damage cost factor from CAFE.
Energy data have been traditionally compiled by Eurostat through the annual Joint Questionnaires, shared by Eurostat and the International Energy Agency, following a well established and harmonised methodology. Methodological information on the annual Joint Questionnaires and data compilation can be found in Eurostat's web page for metadata on energy statistics.
Emissions: Officially reported data following agreed procedures. E.g. CO2 data are based upon annual submissions under the UNFCCC, and SO2 and NOx emissions data are annual submissions to UNECE/CLRTAP/EMEP
For some of the emissions data the ETC-ACC gap-filling methodology has been used. Where countries have not reported data for one, or several years, data for emissions from public conventional thermal power production has been calculated as a proportion of the emissions from all energy industries (which includes emissions from refineries etc) by applying a scaling factor. This scaling factor has been calculated as the ratio of emissions from public conventional thermal power production to emissions from all energy industries for a year in which both data sets exist.
It is recognised that the use of gap-filling can potentially lead to inaccurate trends, but it is considered unavoidable if a comprehensive and comparable set of emissions data for European countries is required for policy analysis purposes.
No methodology for gap filling has been specified. Probably this info has been added together with indicator calculation.
No methodology references available.
No uncertainty has been specified
No uncertainty has been specified
No uncertainty has been specified
For references, please go to https://www.eea.europa.eu/data-and-maps/indicators/external-costs-of-electricity-production-1/external-costs-of-electricity-production or scan the QR code.
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