Valuing the Environmental Impacts of Electricity Generation: A Critical Survey

This article provides a critical survey of a large number of studies carried out during the 1980s and 1990s that have focused on valuing the external, primarily environmental, costs associated with electricity generation. It discusses a number of conceptual, policy-related and, in some cases, unresolved questions in economic valuation of these types of impacts. These include: (a) the definition of externalities; (b) the choices of scope, relevant parameter input assumptions, and methodology; (c) the role of 'green' consumer demand in replacing environmental cost assessments; and (d) the behavioral assumptions underlying environmental impact valuation. By analyzing these issues we gain an increased understanding of the reasons for the wide disparity in external cost estimates reported in previous studies. The article also concludes that in cases where the results of electricity externality studies are utilized as a basis for policy purposes, a conflict between the economic efficiency criterion, its theoretical foundations and other - not necessarily less legitimate - goals of policy may exist