‚ExternE : Methodology and Results‘

Rainer Friedrich

IER, University of Stuttgart

and the ExternE team

www.ExternE .info

External CostsDefinition

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 1Differences of Physical

Impacts

Transport andChemical

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 · 10-5 · Sulfate · Population

Quantified number of additional Years of Life Lost due to

one year operation : 103

Impacts included (I)Impact Cat. Pollutant / Burden Effects Human Health mortality

PM10 SO2, O3

Benzene, BaP, 1,3-butad., Diesel part. Noise Accident risk

Reduction in life expectancy due to short and long time exposure Reduction in life expectancy due to short time exposure Reduction in life expectancy due to long time exposure Reduction in life expectancy due to long time exposure Fatality risk from traffic and workplace accidents

Human Health PM10, O3, SO2 Respiratory hospital admissions morbidity PM10, O3 Restricted activity days PM10, CO Congestive heart failure Benzene, BaP,

1,3-butad., Diesel part.

Cancer risk (non-fatal)

PM10 Cerebrovascular hospital admissions, cases of chronic bronchitis, cases of chronic cough in children, cough in asthmatics, lower respiratory symptoms

O3 Asthma attacks, symptom days Noise Myocardial infarction, angina pectoris, hypertension,

sleep disturbance Accident risk Risk of injuries from traffic and workplace accidents

Impacts included (II)

Impact Category

Pollutant / Burden Effects

Building Material

SO2, Acid deposition

Combustion particles

Ageing of galvanised steel, limestone, mortar, sand-stone, paint, rendering, and zinc for utilitarian buildings

Soiling of buildings

Crops SO2 Yield change for wheat, barley, rye, oats, potato, sugar beet

O3 Yield change for wheat, barley, rye, oats, potato, rice, tobacco, sunflower seed

Acid deposition Increased need for liming

N, S Fertilising effects

Global Warming

CO2, CH4, N2O World-wide effects on mortality, morbidity, coastal impacts, agriculture, energy demand, and economic impacts due to temperature change and sea level rise

Amenity losses Noise Amenity losses due to noise exposure

Ecosystems SO2, NOx, NH3 Eutrophication, Acidification

Impact Pathway Approach – Part 1Differences of Physical

Impacts

Transport andChemical

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 ApproachDifferences of Physical

Impacts

Transport andChemical

Transformation;Noise Propagation

MonetaryValuation

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

Health end-point Recommended central unit values in € price year 2000

Value of a prevented Fatality 1,000,000 Year of Life Lost 50,000 / year lost Hospital admissions 2,000 / admission Emergency Room Visit for respiratory illness 670 / visit General Practicioner visits: Asthma Lower respiratory symptoms

53 / consultation 75 / consultation

Respiratory symptoms in asthmatics: Adults Children

130 / event 280 / event

Respiratory medication use – adults and children

1 / day

Restricted activity days 130 / day Cough day 38 / day Symptom day 38 / day Work loss day 82 / day Minor restricted activity day 38 / day Chronic bronchitis 190,000 / case

Quantification of Impacts and Costs

Exposure Response Function:

Additional Years of Life Lost

= 3.9 · 10-5 · Sulfate · Population

Quantified number of additional Years of Life Lost due to

one year operation : 103

Monetary value

50 000 Euro2000 per Year of Life Lost

Damage costs per year:

5.1 Million Euro2000

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)

0

1

2

3

4

Spain

Italy UK

Poland

Germ

any

France

Belgiu

m

[Eu

ro-C

en

t / k

Wh

] NMVOC

PM10

NOx

SO2

CO2eq

External Costs of Power Stations [Euro-Cent / kWh] 19 Euro/t CO2, Nitrates = 0.5 PM10, YOLLchronic = 50.000 Euro

0

1

2

3

4

5

6

WECOffshore

Hydro PWR,reproc

PV sc-Si Naturalgas-CC

ORC-HKW

PAFC Lignite,IGCC

Coal,IGCC

Coal PFB

Ex

tern

al

Co

sts

[E

uro

-Ce

nt

/ k

Wh

]

Health impacts Crops Material Climate change

Sites in Germany;

2010 technologies!

CHP

External Costs of Power Stations [Euro-Cent / kWh] 19 Euro/t CO2, Nitrates = 0.5 PM10, YOLLchronic = 50.000 Euro

0

1

2

3

4

5

6

WECOffshore

Hydro PWR,reproc

PV sc-Si Naturalgas-CC

ORC-HKW

PAFC Lignite,IGCC

Coal,IGCC

Coal PFB

Ext

ern

al C

ost

s [E

uro

-Cen

t / k

Wh

]

Health impacts Crops Material Climate change

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

0

1

2

3

4

5

6

WECOffshore

Hydro PWR,reproc

PV sc-Si Naturalgas-CC

ORC-HKW PAFC Lignite,IGCC

Coal,IGCC

Coal PFB

Ex

tern

al C

os

ts [

Eu

ro-C

en

t / k

Wh

]

Health impacts Crops Material Climate change

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

0

1

2

3

4

5

6

WECOffshore

Hydro PWR,reproc

PV sc-Si Naturalgas-CC

ORC-HKW

PAFC Lignite,IGCC

Coal,IGCC

Coal PFB

Ex

tern

al C

os

ts [

Eu

ro-C

en

t / k

Wh

]

Health impacts Crops Material Climate change

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

0

1

2

3

4

Gas-CB OFH

Solar-Gas-CBOFH

Gas-CB MFH

Fuel oil-LTMFH

Wood chipsMFH

Ex

tern

al C

os

ts [

Eu

ro /

GJ

]

Health others GHG

Substance Years of Life Lost Damage Costs

(Million

Euro2000) PM 10 474 000 35 300

(primary and secondary)

03 and SO2 11 000 430

Total (rounded) 480 000 36 000

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:

www.ExternE.info

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 IIUncertainties 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 analysisdetermination 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

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

Uncertainties of estimations of external costsBandwidth of results caused by different

assumptions and hypotheses (discount rate, model for assessing mortality risks) sensitivity analysisStated 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‘