To compare technologies or assess policies, it has to be found out whether one composition of impacts and costs is better or worse than another composition. This is not straightforward, as the different impacts have different units, so they cannot be added directly. So, before being able to add them, it is necessary to transform them into a common unit. The ExternE methodology provides a framework for doing this. The basic principles of the methodology are derived in the following.

  1. The first principle of the ExternE methodology is that this assessment or weighting of impacts is as far as possible carried out using quantitative figures and procedures. The reason is that only quantitative algorithms ensure the necessary transparency and reproducibility of results.
  2. Secondly, the common unit into which impacts are transformed is a monetary unit. This has a number of advantages: units are conceivable, monetary values are transferable from one application to another and in order to compare costs with benefits, it is necessary to convert benefits into monetary units. For internalising external effects with taxes, it is also obviously necessary to express these effects in monetary units.
  3. The assessment of impacts is based on the (measured) preferences of the affected well-informed population.
  4. To be able to get meaningful results, the interviewed persons have to understand the change of utility that occurs due to the impact to be assessed. This implies that it is important to value a damage, not a pressure or effect.
  5. The methodology should thus be capable of calculating site and time dependent external costs. Only a detailed bottom-up calculation allows a close appreciation of site, time and technology dependence. Thus for most environmental impacts the so-called ‘Impact pathway approach’ is used.
  6. Depending on the nature of the policy question, average or aggregated external costs can then be calculated.