Internalization of external costs

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The considerations above show clearly that the external costs of renewable energy systems are often much lower than those of fossil or nuclear power plants. To alleviate these costs, the conventional energy sources could be made to pay compensatory levies, which could be used to repair the damage and to convert the energy supply to renewable energy sources with lower external costs.

The quantification of external costs and compensatory levies is not easy. On one hand, much environmental damage is not clearly assigned to a single polluter and many consequences are not yet known today. Many studies on this subject have been published, some of them with very contradictory results.

Hohmeyer carried out one of the first extended examinations (Hohmeyer and Ottinger, 1991). Besides costs for quantifiable damages to the environment he considered costs for exploiting fossil and nuclear energy resources. Since fossil and nuclear energy resources will be consumed by a few generations of humanity, future generations will not be able to use them any more. Therefore, financial reserves must be created to compensate for the higher energy costs of the future. He also included costs for public goods, services, subsidies and R&D. He excluded psycho-social follow-up costs of diseases and deaths and indirect environmental effects, environmental follow-up costs of the nuclear fuel cycle, hidden subsidies and costs of the greenhouse effect.

He determined the total external costs of nuclear power as up to €0.36/kWhel (base year 1982). The external costs of fossil energies are a little lower. For the current electricity supply in Germany with a combination of fossil and nuclear power, he estimated average external costs of between

Table 6.11 External Cost Figures for Electricity Production

Existing Technologies

in the EU for

Energy source/ technology

External costs in €/kWh

Energy source/ technology

External costs in €/kWh

Coal Oil

Natural gas Nuclear power

0.02-0.15 0.03-0.11 0.01-0.04 0.002-0.007

Biomass Hydroelectricity Photovoltaics Wind

0-0.03 0.0003-0.01 0.006 0-0.0025

Source: data from the European Commission, 2003

€0.026/kWhel and €0.133/kWhel. The power plant operators should pay these costs when selling electricity to compensate for the external costs. However, this would almost double the current electricity price. The external costs of renewables are much lower. Neglecting external costs puts renewable energy systems at a significant disadvantage. Therefore, renewable energy resources are not used in a way that would be optimal for the long term national economy and society in general.

A recent study by the European Commission estimated the external costs for electricity generation in Europe (European Commission, 2003). The external costs for fossil power plants are in the same range as those of the Hohmeyer study. However, the external costs for nuclear power are estimated to be much lower by the EC due to very different assumptions about accident risks and exploitation of resources. This indicates not only the controversy that can arise when estimating external costs but also the much lower costs of renewables and the adverse competition conditions created if external costs are neglected.

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