?4/21/04 1 Accounting for externalities April 21, 2004 Nuclear Energy Economics and Policy Analysis For any regulatory issue, four types of questions must be resolved: HowWhat Who�Pays?�Who Decides Nuclear Energy Economics and 2 Policy Analysis 1 4/21/044/21/04 3 Success Criteria for Regulatory Intervention Nuclear Energy Economics and Policy Analysis 4/21/04 4 Success criteria for regulatory intervention • • Equity • Efficiency Nuclear Energy Economics and Policy Analysis Improvement 2�4/21/04 5 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 -- European Commission Nuclear Energy Economics and Policy Analysis economic assessment of fuel cycles has tended to ignore these effects.” 4/21/04 6 Failure to take account of external costs will result in excessive pollution Supply curve Price Demand curve Quantity Nuclear Energy Economics and Policy Analysis 3�Representative Externality Assessment InputsUnits are Dollars Per Metric TonSource: Economic Research Associates (1992), cited in R. W. Larson et al (eds),Economics of Solar Energy Technologies, America Solar Energy Society, Dec. 1992StateEmissionsSO2CO2CH4N O2 NOxVOCsCOParticulatesNYPSCMADPUNVPSCCAPU9001960165071705840950440024240440017207500130010004600242404600450078003600260029-------• The effect 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 3502.24/21/04 9 Source: externe.jrc.es/All-EU+Summary.htm Note: countries. Nuclear Energy Economics and Policy Analysis European Commission, ExternE Project, http://The differences in part reflect differences in the size of the affected populations in the different 4/21/04 10 Source: Nuclear Energy Economics and Policy Analysis European Commission, ExternE project 5�0.0010.01 0.111010010002000Decimal log scalec/kWh (1988)0.0010.01 0.111010010002000BiomassOnshore windPVNuclear fissionGasOilCoalEnvironmentally Related Damage Costs for Selected Electricity SupplyTechnologies (excluding global warming)Source: A. Sterling, "Regulating the Electricity Supply Industry by Valuing EnvironmentalEffects," Futures, Dec. 1992, pp. 1024-47; as presented in D. Toke in Ref. T-1.BiomassHydroelectricityNuclear fissionGasOilCoalRange of Externality Study Estimates (including global warming)from Ref. S-3Source: A. Sterling, Futures, Dec. 1992, pp. 1024-47stated external environmental cost (bars represent range over a variety of studies)logarithmic scale1995 c/kWh0.0010.010.111010010000.0010.010.11101001000Onshore