ExternE : Methodology and Results Rainer Friedrich IER, University of Stuttgart and the ExternE team

External Costs Definition An external cost arises, when the social or economic activities of one group of persons have an impact on another group and when that impact is not fully accounted, or compensated for, by the first group.

Aim of the ExternE methodology: = helps to take into account all externalities in a consistent way when making decisions - Investment decisions - Technology assessment (subsidies, research support) - Consumer decisions (e.g. by adjusting prices) - Cost-benefit analyses, esp. for environmental and health regulation - Green accounting

Basic principles 1)Assessment or weighting of effects should as far as possible be carried out using quantitative figures and functions ->ensures transparency and reproducibility 2) Assessment of effects/damage (e.g. health risk), not of pressures (e.g. emissions of pollutants) -> relation between pressure and effect is in general non-linear and ->effects depend on time and site of activity -> -> Bottom-up approach needed for the complex pathways: the impact pathway approach

Impact Pathway Approach – Part 1 Differences of Physical Impacts Transport and Chemical Transformation; Noise Propagation Pollutant/Noise Emission Calculation is made twice: with and without project!

Quantification of Impacts and Costs Exposure Response Function: Additional Years of Life Lost = 3.9 · · Sulfate · Population Quantified number of additional Years of Life Lost due to one year operation : 103

Impacts included (I)

Impacts included (II)

Impact Pathway Approach – Part 1 Differences of Physical Impacts Transport and Chemical Transformation; Noise Propagation Pollutant/Noise Emission Calculation is made twice: with and without project!

Basic Approach of ExternE This implies: - Available information should be explained before measuring preferences Assessment of impacts is based on the (measured) preferences of the affected well- informed population

Basic Approach Preferences are expressed in, i. e. effects are transformed into monetary units ( 2005 ) ->allows transfer of values, units are conceivable, direct use of results in CBA and for internalising via taxes possible -> however: utility points would give the same results

Impact Pathway Approach Differences of Physical Impacts Transport and Chemical Transformation; Noise Propagation Monetary Valuation Pollutant/Noise Emission Calculation is made twice: with and without project!

Valuation methods for non-market goods Stated Preference (SP) surveys Indirect valuation assesses costs or efforts that can be linked to the non-market good Hedonic Price Method Averting Behavior Method Travel Cost Method Contingent Behavior Method Past behaviour of public decision makers Direct valuation Contingent Valuation Method (CVM) Attribute Based Choice Modeling (ABCM) Participatory approaches Surveys for preferences of public decision makers Revealed Preference (RP) behaviour (shown in the past)

Monetary Valuation

Quantification of Impacts and Costs Exposure Response Function: Additional Years of Life Lost = 3.9 · · Sulfate · Population Quantified number of additional Years of Life Lost due to one year operation : 103 Monetary value Euro 2000 per Year of Life Lost Damage costs per year: 5.1 Million Euro 2000

Some exemplary results of applying the ExternE tools: The results of the ExternE research are the functions and tools that can be applied to answer individual questions! Results of applying the tools depend on scenario, site, time and technology!

Some exemplary results of applying the ExternE tools: Possibly important effects that are not (yet) included: Visual intrusion Biodiversity losses (eutrophication and acidification), however new method developed within the NEEDS project Biodiversity loss (local, however included in Environmental Impact Study) Risk of nuclear proliferation and terrorism Risk aversion resp. treatment of Damocles risks

Quantified External Costs [Euro-Cent / kWh] of a Coal Fired Power Station (steam turbine)

External Costs of Power Stations [Euro-Cent / kWh] 19 Euro/t CO2, Nitrates = 0.5 PM10, YOLL chronic = Euro Sites in Germany; 2010 technologies! CHP

External Costs of Power Stations [Euro-Cent / kWh] 19 Euro/t CO2, Nitrates = 0.5 PM10, YOLL chronic = Euro WEC Offshore HydroPWR, reproc PV sc-SiNatural gas-CC ORC- HKW PAFCLignite, IGCC Coal, IGCC Coal PFB External Costs [Euro-Cent / kWh] Health impactsCropsMaterialClimate change

External Costs of Power Stations [Euro-Cent / kWh] Sc: Nitrates have no impact to human health

External Costs of Power Stations [Euro-Cent / kWh] Sc: 50 Euro/t CO2

External Costs of Power Stations [Euro-Cent / kWh] Sc: YOLL chronic = Euro

Quantification of Externalities of Heat Supply CB = condensing boiler, MFH = multi family house, OFM = one family house

SubstanceYears of Life Lost Damage Costs ( Million Euro 2000 ) PM (primary and secondary) 03 and SO Total (rounded) Human Health Effects due to Electricity Production in the EU25 Countries

Summary The ExternE methodology estimates effects of technologies for energy conversion and assesses them based on preferences of the affected population for a large number of impact pathways. The methodology is already widely used for decision aid in the fields of energy conversion, transport and environmental protection. Gaps and uncertainties exist, however will be more and more reduced due to ongoing research (e.g. on pathways involving toxic substances, heavy metals, biodiversity, water and soil contamination…) More information on the ExternE website:

Relation between ExternE methodology and Multicriteria Decision Analysis Both use preferences to weigh effects Differences: monetary vs. non monetary weighting factors Preferences of stake holders (or decision makers?) vs. representative part of population -> MCDA methodology can be used to close gaps (further effects, monetary weighting factors); explore very controversial issues

The aim should be to integrate results of these approaches into an overall assessment framework ! Problems of MAUA: -often decision makers are not willing to state their preferences - stake holders tend to fix weighting so that the predefined result results -As stake holders have different preferences, no overall decision can be deduced - for each decision process new factors have to be estimated

Criticisms It is not appropriate or ethical to compare or express intangible values in monetary terms -> explain, that monetary values are not principally different from other units, but have some practical advantages Use of contingent valuation for assessing monetary values sometimes problematic -> Use also other methods

Criticisms II Uncertainties resp. the range of results are so large, that the results are not useful -> often not true, as decisions often are robust; in other cases opportunity for structured discussion Uncertainties from impact pathway modelling reflect uncertainty of current knowledge, can be reduced by further research. bandwidth of results caused by different assumptions and hypotheses (interest rate, choice of hypothesis with regard to exposure-response–relationship, choice of indicators ) sensitivity analysis determination of hypotheses to be used by decision maker

Criticisms III Gaps, that might contribute significantly to external costs remain and are neglected -> extension of considered effects For very controversial issues a minority might not accept the result -> sensitivity analysis, discourse

Criticisms It is not appropriate or ethical to compare or express illness and death in monetary terms Environmental protection should follow strong sustainability rules The precautionary principle is not adequately addressed Uncertainties resp. the range of results are so large, that the results are not useful Gaps remain and are neglected Values keep changing all the time

Use of Multicriteria Decision Analysis and Participatory Approaches to Extend/Amend the ExternE Methodology: Close Gaps, where no monetary value is available (e.g. social criteria) Carry out MCA resp. choice modelling (for representative part of population, decision makers?) Deal with very controversial issues (nuclear): Explore and quantify opinion of stakeholders, try to convince them to quantify and generalise preferences; will result in range of results according to stake holders -> Integrate results into a combined assessment framework

Assessment of Greenhouse Gas Emissions in the EU Marginal damage costs: 2, per t CO 2 (ExternE 2000) –median value/ large range (ca. 0,1 to 16 per t of CO 2 in ExternE; up to 165 per t of CO 2 in other studies) Marginal avoidance costs for EU-Kyoto aim -8% CO 2 äq compared to 1990 ca 20 per t CO 2 äq with emission trading range ca. 5 – 42 per t of CO 2

Uncertainties of estimations of external costs Bandwidth of results caused by different assumptions and hypotheses (discount rate, model for assessing mortality risks) sensitivity analysis Stated preference (esp. participative methods) Guidelines by decision maker, which hypotheses/assumptions to be used project HEATCO to propose harmonized guidelines for the transport sector for DG TREN, recommendations for VSL and discount rates (DG Env) Preparation of guidelines for the German Umweltbundesamt