Externalities

ECONOMICS OF ENERGY SYSTEMS AND ENVIRONMENT

Environmental impacts of human activities that are not accounted for in market prices of goods or services are called externalities. External costs are externalities expressed in monetary terms.

Externalities arise 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. Policy decision-making in general and environmental policies in particular can be evaluated from a societal perspective by means of Cost-Benefit Analysis (CBA). External costs constitute an important element in these analyses: when avoided, they are counted as social benefits.

EIFER focuses on the methods used for the monetization of environmental impacts: case studies (e.g. on the valuation of the aquatic biodiversity of the river Rhine, health impacts of air pollution) provide insight into strengths and weaknesses of these methods and improvements are developed together with international partners.

The work on the quantification of environmental impacts of electricity production is completed by Life Cycle Assessments (LCA), Life Cycle Impact Assessments (LCIA) as well as so-called “Footprint” calculations. These activities aim at providing decision support for an improved environmental management, in particular in the context of energy supply.

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