External Cost of Fossil And Non-fossil Energy Systems The Case of the Czech Republic Milan ŠČASNÝ & Jan MELICHAR Charles University Environment Center, Prague NEEDS FORUM 2 “Energy Supply Security” Krakow, 5-6 July 2007

Content 1.Paper Motivation and Its Goal 2.Methodology 3.External Costs Estimates  fossils and non-fossils used in power sector  non-energy sectors 4.(Not only) Concluding Remarks 5.Research on the ExternE in CEE region

Motivation Technology’s attributes important for the choice – internal costs – energy supply security – external costs (other than security of supply) External costs of energy generation from fossil fuels (  200 € per capita) or – 2% HDP in Hungary – 2.5% HDP in Czech Rep – 5% HDP in Poland

Goals Technologies’ ranking – which technology outperform its substitutes? – what are the external costs of (some) renewable energies and fossil plants? – factors and assumptions that influence the external cost values Document uses of the ExternE method for more comprehensive technology impact assessment

Externality as a source of market failure deviation from the first-best neoclassical world in which the price mechanism takes care of socially (Pareto) optimal resource allocation  signal failure  market prices no longer reflect social costs (or benefits) „An external effect exists when an actor’s (the receptor’s) utility (or profit) function contains a real variable whose actual value depends on the behaviour of another actor (the supplier), who does not take these effects of his behaviour into account in his decision making process“ (Baumol and Oates 1988; Verhoef 2002) and “… the effect produced is not a deliberate creation but an intended or incidental by-product of some otherwise legitimate activity“ (Mishan 1971) „…externality arises when the social or economic activities of one group of persons have an impact on another group and when that impacts is not fully accounted, or compensated for; by the first group“ (ExternE; EC 2003)

ExternE method  impact assessment (e.g. health risk), not of pressures (e.g. emissions of pollutants)  damage associated with certain process depend site (location) technology time  preference structure of the population – how much are you willing-to-pay for avoiding adverse impacts ? market price (e.g. building materials, crop, medical treatment of illness, …) non-market valuation (e.g. dis-welfare due to illness, premature death, landscape amenities, noise, ….)  impact assessment at each spatial level, i.e. local, regional, hemispheric, global effects  life cycle impacts considered particularly, but not only, for renewables and nuclear energy bottom-up approach for the complex pathways> ‘impact pathway approach’

Impact pathway approach POLLUTANT & NOISE EMISSIONS MONETARY VALUATION TRANSPORT & CHEMICAL TRANSFORMATION DIFFERENCES OF PHYSICAL IMPATS

ExternE> Impacts categories Pollutant/burden particulate matters particulate matters SO 2, NOx SO 2, NOx CO 2 (CH 4 ) CO 2 (CH 4 ) O 3 O 3 CO, VOC CO, VOC trace poll. (HM, dioxines) trace poll. (HM, dioxines) noise noise odour odour Impact category Human health Human health - morbidity - mortality - dvlp. impairment Building materials Building materials Crops Crops Climate change Climate change Forests Forests Natural ecosystems Natural ecosystems Visibility Visibility Cultural heritage Cultural heritage

External costs calcualtions Model assumptions, i.e. DRFs, monetary values, modelling (ExternE methodology 2005-update) EcoSense v4.1 software tool 2003 emission and reference technology data external costs mostly of process, i.e. energy generation in the plant

Power sector in the Czech Republic Electricity generation Heat generation 83 TWh (  35% in CHP’s) 143 PJ (  75% in CHP’s)

Czech fossil power plants External costs in €c/kWh (2003)

Note: Czech Republic and Poland (2002), Hungary (2003) and Romania (2004) CEE fossil power plants external costs in €c/kWh

Biomass heating plant> technology parameters

Biomass heating plant> external costs in €/GJ

Biomass heating plant> external costs comparison in €/GJ

Biogas> electricity production technology parameters & externalities compare with> – natural gas  €c/kWh – hard coal  2.8 €c/kWh – brown coal  €c/kWh – lignite  5.8 €c/kWh

Wind power> technology parameters & externalities Source: ECLIPSE Project Caveat> only impacts of up- stream processes included impact due to noise and landscape amenities might likely increase damage

External costs for ‘competing’ technologies (CZ)

Bio-fuels> external costs of production and use as propellant € per 100 vehicle-km (passenger EURO III with 1.2 to 2.0 l) Nafta – dieselvenkov – rural areas B30 – 30%+ of biodiesel město špička – urban in peak hours Benzín – petrol E5 – 5% bioetanol content Source: Melichar and Máca 2006

Bio-fuels used as propellants external costs of production €/ton €/GJ Methanol production Heat – conversion Electricity - conversion Agro diesel fertilizers bioetanol – made from wheat bionafta – biodiesel from rape Source: Melichar and Máca 2006

Municipal Waste Treatment Options> landfilling (SWDS) versus incinerating (WIP) Source: Havránek and Ščasný 2007 (MethodEx)

Sensitivity Analysis, Assumptions and Policy-uses

Spatial dimension of damage> Who is the victim?

Social optimality perspective> Monetary values for valuing impacts Human health impacts € 2000 ExternE Values for Czech Rep (€ 2000 ) based on own research adjusted by GDP PPP Myocardial infarction Chronic bronchitis Minor restricted activity days Restricted activity days Bronchodilator use Cough Lower respiratory symptoms 8 -3 Asthma attack Chronic cough Ceberovascular hospital admission Respiratory hospital admission Symptom days Acute YOLL * (3% discount rate) Chronic YOLL * (3% discount rate)

Social optimality perspective> Comparison of external costs estimates Source: Máca and Melichar 2007  Preferences, and thus impacts, vary among countries  Should impacts, lives say, be valued equally?  Value adjustment can provide better damage estimates, however, own country-specific estimates are even better

Social Cost of Climate Change damage estimates differ due to assumptions used, i.e. discount functional form and discount rate, equity weighting… default reference value 19 € per ton CO 2 (ExternE 2005; BeTa ‘07) – 2.4 € and 40 € per t CO2 used as lower and upper bound

Municipal Waste Treatment Options> WIP and SWDS ranking can change due to the assumptions on MSC of Carbon used Source: Havránek and Ščasný 2007 (MethodEx)

External costs versus retail price Brown coal 1.11 CZK/kWh Industry 1.58 CZK/kWh Households 2.38 CZK/kWh

Current versus advanced (planned) technologies, €c/kWh Source: IER (2005)

Concluding remarks We have the method that can be used to calculate externalities of energy generation, i.e. the ExternE based on IPA as its core External costs of energy generation significantly differ due to the technology used, location and time Although, there is no technology with zero impact, renewable energies are less environmentally harmful, i.e. have less adverse impacts, than fossil-based technologies – burning biomass results in damage of 0.5 to 1.0 € per GJ of heat that causes mostly adverse health effects – electricity generation from biogas produces the externalities of €c/kWh, wind power at least of 0.04 €c/kWh (plus process) – externalities associated with renewable-technologies are one order lower, i.e. the external costs of natural gas are  €c/kWh, hard coal  2.8 €c/kWh, brown coal  €c/kWh or lignite  5.8 €c/kWh

Concluding remarks Technology always matters> – more advanced gas-technology is less adverse than more emission intensive biomass-technology – CHP’s are better-off than plants without co-generation – waste treatment with energy recovery always dominates treatment without recovery – impacts of up-stream processes need to be considered in properly conducted technology impact assessment

Concluding remarks Limits of full assessment> assessment has not covered all impact categories – (dis-)amenities of renewables (noise, landscape, biodiversity)  cannot be modelled by EcoSense, but need to be analysed by conducting original non-market valuation study or benefit transfer technique – impacts of up- and down-stream processes can be important (biomass and bio-fuel production, extracted and transported fossils etc.) – nuclear cycle assessment (radionuclides, accidents, risk perception) – security of supply – preference for more secure supply of energies – Transmission lines – effect on landscape, likely on property value Capacity building and information exchange are not certainly useless action …As always, more research needed

Research on External Costs in CEE IP NEEDS> quantify external costs for reference energy technologies in 6 CEE countries ( ) – AGH University of Science and Technology, Krakow – Atomic Energy Research Institute, Budapest (fossils, biomass, nuclear, CBA, GA) – Charles University Environment Center, Prague (fossils, biomass, nuclear, CBA, GA) – Polish Academy of Sciences, MEERI, Krakow (fossils + upstreams, CBA) – PROFING, Bratislava (fossils, biomass, nuclear, CBA, GA) – Stockholm Environment Institute Tallinn Center, Estonian Institute for Sustainable Development, Tallin (fossils, renewables) – University of National and World Economy, Sofia (fossils+upstreams, nuclear, GA) CASES> full costs assessment of energy systems ( ) – Charles University Environment Center, Prague – Lithuanian Energy Institute, Kaunas – University of Warsaw - Warsaw Ecological Economic Center, Warszawa IP EXIOPOL> external costs assessment for energy, waste, industry… in EU in extended I-O framework ( )

Milan Ščasný, Ph.D. Charles University Environemnt Center U Kříže 8, Prague 5