A detailed description of the methodology
for generating external costs can be found here:
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Human activities
like energy conversion, transport, industry, or agriculture cause substantial
environmental and
human health damages, which vary widely depending on where the activity takes place and on the type of the activity.
The damages caused are for the most part not integrated into the
pricing system. Borrowing a
concept adopted from welfare economics, environmental policy calls
these damage costs
externalities or external costs. By societal welfare principles, policy
should aim to ensure
that prices reflect total costs of an activity, incorporating the cost
of damages caused by
employing taxes, subsidies, or other economic instruments. This
internalisation of external
costs is intended as a strategy to rebalance the social and
environmental dimension with the
purely economic one, accordingly leading to greater environmental
sustainability. Doing so is a
clear objective for the European Union, for example, as expressed in
the Fifth and Sigth Framework
Programme of the European Commission and in the Göteborg Protocol
of 2001.
To support this internalisation, socio-environmental damages must first be estimated and monetized. Over the past 20 years, there has been much progress in the analysis of environmental damage costs, particularly through the "ExternE" (External costs of Energy) European Research Network. Since 1991, the ExternE project has involved more than 50 research teams in over 20 countries. The effects of energy conversion are physically, environmentally, and socially complex and difficult to estimate, and involve very large, sometimes ultimately unresolvable, uncertainties, unpredictabilites, and differences of opinion. Despite these difficulties, ExternE has become a well-recognised source for method and results of externalities estimation. |
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