What is meant by “externalized costs”?
Externalized costs are real costs that are not quantified within the levelized cost calculations presented in the internalized cost articles. These costs are directly or indirectly paid by various sectors of the economy in forms such as pollution-related health costs, grid integration costs of intermittent renewables, and a reduction in the free services rendered by the biosphere.
Externalized costs of efficiency
Externalized costs of efficiency have two main components: avoided externalities of avoided energy use and added externalities related to the additional economic effort required. The avoided costs can be estimated from the current breakdown of energy use and estimates of externalized costs of other technologies from earlier articles.
From these sources, the avoided externalized costs from avoided energy consumption are as follows:
- Electricity: $18/MWh
- Heat: $3/GJ
- Transport: $0.2/litre
The additional externality of increased economic effort can be estimated from the global economic carbon intensity is about 0.4 kg/$. Carbon intensity of the manufacturing sector will be taken as double this number. As an example, the previous article on the internalized costs of efficiency estimated the net cost of more efficient appliances and lighting at about $36/MWh, implying that the additional CO2 released from the greater economic effort required amounts to 29 kgCO2/MWh. The CO2 price of $36/ton used in previous articles then returns a cost of $1/MWh. We’ll double this small amount to $2/MWh to account for other non-CO2 externalities.
Using this method, the added externalized costs from increased economic effort can be summarized as follows:
- Electricity: $1/MWh
- Heat: $0.4/GJ
- Transport: $0.02/litre
Clearly, the avoided externalized cost is much larger than the additional externalized cost. Efficiency therefore has a significant net-negative externalized cost, increasing its attractiveness even further. The total externalized benefit of efficiency is therefore estimated as follows:
- Electricity: $16/MWh
- Heat: $2.6/GJ
- Transport: $0.18/litre
Externalized cost of conservation
Energy conservation is here defined as follows: reductions in energy consumption achieved through behavioral choices that have a negligible or positive effect on the number of happy life years achieved. This is, by a country mile, the most cost effective vehicle for addressing global energy issues, returning very large negative internalized costs.
Using the same methodology as above, the externalized benefit of conservation from avoided energy consumption and lower economic effort amounts to the following:
- Electricity: 18 + 18 = $36/MWh
- Transport: 0.2 + 0.1 = $0.3/litre
If you have a number that differs significantly from the estimates given above, please add it in the comments section below. Please start your comment with the keyword “DATA”, followed by a brief explanation and preferably a linked reference. Each DATA comment will be weighted by the number of “likes” when the data is ultimately processed.
Many comments are welcome. More data = greater accuracy.