Communication on External costs of electricity production A view from industry’s perspective

1. Communication on External costs of electricity productionA view from industry’s perspective

2. General comments • Electricity Industry recognises the extensive and valuable work done on the estimation of external costs • As others, EI has concerns on some scientific aspects of the approaches used • Main EI’s concern is however about transparency of information: when figures are used, uncertainties and caveats are not accounted for. • This has dramatic consequences for decision-making • Two illustrations: site-specficity and uncertainties

3. Site specificity (1/2) • The cost of one ton of emitted pollutant fully depends on the plant’s location • For atmospheric pollutants, the main drivers for damages are meteorological conditions and population density • However, present ExternE figures have been derived for one particular plant per country, and are thus site specific • French exemple: • Figures derived for Cordemais plant, located west of France, under dominant winds from the west • Nothing to do with plants located south of France, near the mediterranean border, under dominant winds from the north

4. Site specificity (2/2) • As a general principle, figures derived from a specific plant can not fit for generic uses • However, policy-making requires generic values at national/european level: • Cost Benefit Analysis for global air quality improvement (CAFÉ) • Comparison of generation technologies • Figures used so far (as in the CAFÉ CBA) are not the right ones

5. Uncertainties (1/2) • The ExternE (1998) project has estimated uncertainties1, further revised by the MAXIMA (2005) project • If the damage cost a pollutant is estimated to be 5000€/t, then the true value has 95% chance of being within2 [150 , 41000] €/kg 1 ExternE project, Externalities of Energy, vol. 7 methodology 1998 update 2 Figures expressed as mean, not median, values ; calculations developped by the MAXIMA team

6. Uncertainties (2/2) • So far, Cost Benefit Analysis (as in CAFÉ) only consider variability of figures, but not their uncertainty • Variability accounts for the fact that different studies give different values • In the CAFÉ CBA, variability induces a factor of about 3 between the upper and lower damage estimates • Uncertainty is responsible for ranges that are much larger (100 times for individual pollutants) than variability

7. Consequences for policy-making (1/2) • Exemple of atmospheric pollution, National Emission Ceilings approach (NECD)1 • Total cost beared by the society is the sum of • Cost of compliance to achieve a given ceiling • External cost due to the remaining emissions • What is the uncertainty on the total cost due to the uncertainty on the external costs of one ton of emitted pollutant ? 1 Rabl, Spadaro, Zwaan 2005

8. NECD: SO2 ceiling for France – 2010

9. Consequences for policy-making (2/2) • Total cost might be underestimated by 60% to 150% • Underestimation of the total cost is much larger (up to 150%) and grows much faster when damage costs are overestimated than when they are underestimated • This might change policy-making’s perspective

10. Conclusions • Stakeholders have to be better informed that: • In their present state of development, external costs are still a topic for research • Many caveats are attached (as site specificity of present values) • Uncertainties are quite large and have to be accounted for in CBA so as not to get biased decisions