The Internalization of External Costs of CHP Plants in Croatia

AbstractIn order to achieve the cost-optimal level, from the social point of view, the state/government seeks to internalize the external costs, considering that it would be an incentive for investors to behave more responsibly to the environment and society as a whole. Specifically, more technologically advanced power plants significantly reduce emissions, use less fuel to run, generate less waste, and thereby reduce the amount that an investor has to pay for the internalized external costs. However, internalized costs affect not only the decision for the construction, hence the security of future energy supply, but also the production cost of energy (and consequently the selling price), and thus the overall economic and social activities in a country. Therefore, the issue of internalization of external costs is of great importance for both investors and sustainable economic growth and development of each country.The main objectives of this paper were to investigate and estimate internalized costs an investor in combined cycle heat and power (CHP) plant in Croatia has to pay for the first project year, and to determine their share in the operating cost structure of energy generation for that year. To define the various social costs associated with energy generation, the impact pathway approach within the ExternE methodology was used. The results show that internalized costs for the first year for the 500 MW CHP plants account for 7% of total production costs