Costs of electricity generated from fossil fuels should be far higher, says new research

A major new EU research study has revealed that if damage to the environment and health was included in the price of electricity generated by coal and oil, their costs would double, and the cost of electricity production from gas would increase by 30%.

Without including global warming, environmental and health costs attributable to fossil fuel combustion amount up to 1-2% of the EU’s gross domestic product (GDP), and have to be covered by society at large, since they are not included in the bills which electricity customers pay, says the EXTERNE project, carried out by EU and US researchers. According to the European Commission, this is the first ever research project to put plausible financial figures against damages resulting from different forms of electricity production for the entire EU.

Using a technique known as ‘impact pathway methodology’ to measure emissions and dispersion of pollutants in the environment and the subsequent increase in ambient concentrations, combined with an evaluation of their impact on factors such as crop yield and health, the researchers have been able to produce a final cost for a variety of fuels. On top of the fossil fuel costs, the research team calculated that nuclear power results in relatively low external costs due to its low influence on global warming and its low probability of accidents in EU power plants, and wind and hydro electricity generate the lowest external costs.

The report outlines two ways in which authorities can take account of damage from fossil fuels. One possibility would be to tax damaging fuels and technologies in order to substantially raise the price of electricity generated by them. For example, the price of coal would need to rise by between two and eight cents (five pence) per kWh in order to reflect their true cost.

However, since taxation at the EU level would be very difficult to achieve, the European Commission has decided to opt for the second alternative, that of encouraging or subsidising cleaner technologies that allow customers to avoid health or environmental costs. In February this year, the Commission published community guidelines on state aid for environmental protection, which said that subsidies should be calculated on the basis of the external costs avoided, resulting in a maximum subsidy of five cents (three pence) per kWh.

The researchers point out that the system could also be used to calculate the real costs of other energy-related sectors, such as transport. In fact, preliminary work has already shown that road transport adds a further 1-2% of GDP to the EU bill.

A follow-up study has now been launched studying additional external costs, such as mortality, acidification and eutrophication, major accidents from non-nuclear fuel, such from oil spills, and the effects caused by several parts of the environment – air, soil and water – being damaged.

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