September 2004 / August 2008

New Energy Externalities Developments for Sustainability - NEEDS

NEEDS is an Integrated Project that aims to continue the work on the external costs of energy use that was intiated by past projects. FEEM is leader of the stream on externalities arising from the extraction and transport of energy.

NEEDS is an Integrated Project that aims to continue the work on the external costs of energy use initiated by past projects. Its ultimate objective is to evaluate the full costs and benefits (i.e. direct and external) of energy policies and of future energy systems, both at the level of individual countries and for the enlarged EU as a whole.

The project is built as a series of "research streams". FEEM's contribution takes place within the stream dealing with the externalities arising from the extraction and transport of energy. In particular the research in which FEEM is involved aims to:

  • deepen the methodology and the assessment of those activities that have not been adequately analysed in the past, like oil and gas extraction and transport, electricity transport, transport of hydrogen etc.; and
  • make a realistic quantitative assessment of externalities associated with the upstream activities (extraction and transport) of the fuel chain.

Of particular interest will be the valuation of accidents involving tanker vessels, the transport of oil and gas over long distances and an assessment of the risk reduction potential from new technology and regulation.

The methodology that will be used is the same as in ExternE: the careful modelling of the impact pathway by which emissions from an activity are dispersed in the ambient environment, an assessment of these impacts and their valuation in quantitative terms.

FEEM is involved in the analysis of all energy vectors, and in particular is Working Package lead for the analysis of externalities related to the extraction and transportation of oil.

Main Results and Outputs

The impacts of the externalities related to the extraction and transportation of energy vectors can be very high. Up to now however, they have been poorly analysed and quantified.

Oil spills have the highest potential in terms of environmental and economic costs. In particular, the recent large scale accidents in oil sea transport have highlighted the concern of oil spills to the environment, health, economy, and socio-economic activity. For instance, the pollution resulting from the spill of half of the cargo of the tanker Prestige has been drifting on long distances, ultimately resulting in devastating repeated impacts on the Spanish and French coastlines.

European gas demand is expected to continue the fast growth it has experienced during the last decade. Externalities associated to the extraction of natural gas refer mostly to venting, flaring and accidental blow-outs. As to pipelines, the major source of operational externalities are emissions due to the compression of gas as well as gas leakages along the pipe. Accidental externalities may occur in case of pipeline breaks. These leaks and breaks can lead to explosions with damages on goods and people in addition to the atmospheric emission of green-house gases.

Electricity exchanges relate to electricity interconnections between EU countries as well as to electricity imports by EU countries from bordering countries/regions. Although electricity transmission is essential for an European electricity market, and the installation of new lines are often controversial, there are no generic data nor models to assess externalities associated with electricity transmission and distribution.

In order to fill the gaps in the methodology, in the knowledge base and in the policy implications of energy-related externalities, NEEDS integrates three well established quantitative methodologies into a new single framework to be widely diffused among researchers and policy analysts. The three basic analytical frameworks are:

  • ExternE, which calculates the external costs associated to the supply of electricity and heat based on the most relevant – both current and future - technological options;
  • Life Cycle Analysis (LCA), which calculates "cradle to grave" energy, environment, material and economic resources used by the most relevant power supply options;
  • The Integrated MARKAL- EFOM System (TIMES), which generates technology rich partial equilibrium solutions for the long term development of energy - environment systems.

In particular, the objective of the stream in which FEEM is involved is to assess the externalities associated with the initial stages of fuel cycles that provide energy for final use. The methodology used follows the general impact pathway approach, assessing for each stage of the fuel cycle the activities, for each activity the burdens, for each burden the impact, and for each impact the economic valuation. Attention is paid to the potential additional externalities due to major accidents that represents a probabilistic contribution to the overall external costs. The costs of these include not only the expected cost associated with the event (i.e. the estimated cost times the probability), but also an element to allow for social risk aversion to such events. This contribution is assessed by means of risk analysis techniques. The work is based on an extensive case-study analysis comprising all the main fuel supply sources and routes for Europe. The externality values associated to the different case studies (by route) is then weighted by the relative value of the volumes transported by each route (present and future) in order to obtain an overall and realistic value of the externalities by fuel (present and future).

Externality values are separately assessed depending on whether they have been generated inside or outside the EU, and whether the impact is at the local, regional, or global level. More emphasis is also placed in epidemiological research on the modifying factors that can explain the heterogeneity of risks between different locations.

FEEM is Work Package lead for the analysis of externalities related to the extraction and transportation of oil. FEEM participates in the analysis of the externalities related to the transmission of electricity and to the extraction and transportation of gas and other non-oil energy vectors.

Ultimately, NEEDS will allow to calculate full cost / benefit equilibrium solutions of future energy systems. External cost calculations must then feed into policy formulation. Whether in the form of direct internalisation of external costs in the prices of energy, or through subsidisation of cleaner energy sources, the progress in energy externalities valuation has already provided, in recent years, direct input to policy making. NEEDS intends not only to refine and supplement the quality of such inputs, but, more ambitiously, to devise long term scenarios incorporating internalisation strategies for Europe, and to simulate their potential effects on energy demand and supply, environmental performances, and sustainability of the economy at large.

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