Externalities of Electricity Generation

(Updated December 2016)

  • Fossil fuels receive indirect subsidies in their waste disposal as well as some direct subsidies.
  • Nuclear energy fully accounts for its waste disposal and decommissioning costs in financial evaluations.
  • External costs should be considered in evaluating energy sources.

Externalities are effects which arise from electricity generation and which are not factored into any narrow economic consideration of the enterprise.

In particular, external costs are those actually incurred in relation to health and the environment and which are quantifiable, but are not built into the cost of the electricity and therefore are borne by society at large. They include particularly the effects of air pollution on human health, crop yields and buildings, as well as occupational disease and accidents. The impact of global warming is now generally included.

External costs

The implicit subsidies where the waste products of energy use are allowed to be dumped into the biosphere are greater than any direct subsidies. The largest of them are given to fossil fuel producers. Nuclear energy has always had to cost in its own waste management and disposal (equivalent to about 5% of generation cost, with a further similar sum for decommisioning)*. Renewables give rise to wastes in manufacturing, and while these are sometimes unpleasant or even extremely toxic they are dealt with in the same way as other manufacturing hazards and wastes. Decommissioned wind turbines are often replaced with new ones on the same site, otherwise there may be substantial structural material to remove. Solar PV silicon-based panels as electronic waste are an issue at end of life

* In the UK this has been patchy due to changing government policies, and major expenditure is now required to deal with legacy wastes arising from early nuclear power generation – effectively an external cost, albeit an historical one.

Consideration, and if possible quantification, of external costs aids life cycle analysis and technology comparison as well as cost-benefit analysis generally.

The report of ExternE, a major European study of the external costs of various fuel cycles, focusing on coal and nuclear, was released in 2001 and further figures have emerged since. The European Commission launched the project in 1991 in collaboration with the US Department of Energy (which subsequently dropped out), and it was the first research project of its kind "to put plausible financial figures against damage resulting from different forms of electricity production for the entire EU".

The external costs are defined as those actually incurred in relation to health and the environment and quantifiable but not built into the cost of the electricity to the consumer and therefore which are borne by society at large. They include particularly the effects of air pollution on human health, crop yields and buildings, as well as occupational disease and accidents. The 2001 data excluded effects on ecosystems and the impact of global warming, but these are now included despite the high range of uncertainty in adequately quantifying and evaluating them economically.

The methodology measures emissions, their dispersion pathways and ultimate impact. Exposure-response models lead to evaluating the physical impacts in monetary terms. With nuclear energy the (low) risk of accidents is factored in along with high estimates of radiological impacts from mine tailings (since shown to be exaggerated) and carbon-14 emissions from reprocessing (waste management and decommissioning being already within the cost to the consumer).

The report shows that in clear cash terms nuclear energy incurs about one-tenth of the costs of coal. Nuclear energy averages under 0.4 euro cents/kWh (0.2-0.7), less than hydro, coal is over 4.0 cents/kWh (2-10 cent/kWh averages in different countries), gas ranges 1-4 cents/kWh and only wind shows up better than nuclear, at 0.05-0.25 cents/kWh average.

The EU cost of electricity generation without these external costs averages about 4 cents/kWh. If these external costs were in fact included, the EU price of electricity from coal would double and that from gas would increase by around 30%. A summary plus access to more recent work is on the ExternE website.

The report proposes two ways of incorporating external costs: taxing the costs or subsidising alternatives. Due to the difficulty of taxing in an EU context, subsidy is favoured. EC guidelines published in February 2001 encourage members states to subsidise "new plants producing renewable energy ... on the basis of external costs avoided," up to 5 c/kWh. However, this provision does not extend to nuclear power, despite the comparable external costs avoided. EU member countries have pledged to have renewables (including hydro) provide 12% of total energy and 22% of electricity by 2010, a target which appears unlikely to be met. The case for extending the subsidy to nuclear energy is obvious, particularly if climate change is to be taken seriously.

In that connection it is interesting to note the significant state subsidies to the coal industry in the EU, reported to total €6874 million or €190 per tonne in 2000. This includes operating aid, 'aid for reduction of activity', and other. In Germany alone, politically committed to phasing out nuclear energy and meanwhile finding new ways to tax it, €4598 million was spent in subsidies to coal in 2000. Considerable effort was being given to finding ways to extend these subsidies beyond mid-2002.

Another European treatment of production and external costs, specifically of power generation in Switzerland (the GaBE Project), has been done by the Paul Scherrer Institut and shows that the damage costs from fossil fuels are 10 to 350% of the production costs, while those for nuclear are very small. The figure below is taken from the GaBE Project.

Switzerland Electricity

The twin bars represent the range of values for plants operating in Switzerland (Rp = cents SFR)

An earlier European study (Krewitt et al, 1999) quantified environmental damage costs from fossil fuel electricity generation in the EU for 1990 as US$ 70 billion, about 1% of GDP. This included impacts on human health, building materials and crop production, but not global warming.

The EC undertook a follow-on study to ExternE called NewExt to examine particular environmental costs and risks, mostly associated with fossil fuels.

In October 2009 a US National Research Council report commissioned by Congress quantified and analysed a total of $120 billion in 'hidden' external costs of energy production in the USA in 2005. The figures reflect mainly health damage and exclude the effects of climate change. Electricity generation accounted for more than half, practically all being from coal.

The external cost of damages, primarily caused from sulfur dioxide, nitrogen oxide and particulate matter emissions from burning coal, were $62 billion, or 3.2 cents per kWh of electricity produced from it. The report expects damages from coal to fall to 1.7 c/kWh by 2030. Electricity produced from natural gas produced $0.74 billion in damages (0.16 c/kWh) in 2005, primarily from air pollution. For nuclear the figure was about 0.02 c/kWh. Motor vehicles produced $56 billion in health and other non-climate damages, considering the full life cycle of vehicles – only one-third was from their operation. Electric and plug-in hybrid vehicles resulted in higher non-climate damages than other technologies, due to reliance on fossil fuels for the electricity. Energy used to create the batteries and electric motors adds 20% of the manufacturing portion of life-cycle damages.

Public health

Consideration of external costs leads to the conclusion that the public health benefits associated with reducing greenhouse gas emissions from fossil fuel burning could be the strongest reason for pursuing them. Considering four cities – New York, Mexico, Santiago and Sao Paulo – with total 45 million people, a paper in Science presents calculations showing that some 64,000 deaths would be avoided in the two decades to 2020 by reducing fossil fuel combustion in line with greenhouse abatement targets. This is consistent with a 1995 World Health Organisation (WHO) estimate of 460,000 avoidable deaths annually from suspended particulates, largely due to outdoor urban exposure.

The World Health Organization in 1997 presented two estimates, of 2.7 or 3 million deaths occurring each year as a result of air pollution. In the latter estimate: 2.8 million deaths were due to indoor exposures and 200,000 to outdoor exposure. The lower estimate comprised 1.85 million deaths from rural indoor pollution, 363,000 from urban indoor pollution and 511,000 from urban ambient pollution. The WHO report points out that these totals are about 6% of all deaths, and the uncertainty of the estimates means that the range should be taken as 1.4 to 6 million deaths annually attributable to air pollution.

Life-cycle CO2 emissions

Turning to carbon dioxide, if all energy inputs are assumed to be from coal-fired plants, at about one kilogram of carbon dioxide per kWh, it is possible to derive a greenhouse contribution from the energy input percentage of output. However, For Sweden's Forsmark as many energy inputs are not fossil fuel, its life-cycle analysis (2002 data) give it the very low CO2 emissions figure of 3.1 g/kWh.

Some published figures arise from old energy-inefficient gaseous diffusion enrichment plants (even though in France these were run by nuclear power), phased out in 2012. The greenhouse contribution from any nuclear reactor using centrifuge-enriched uranium is less than 20 g/kWh overall.

Figures published in 2006 for Japan show 13 g/kWh, with prospects of this halving in future.

Older figures published from Japan's Central Research Institute of the Electric Power Industry give life-cycle carbon dioxide emission figures for various generation technologies. Swedish utility Vattenfall (1999) published a popular account of life-cycle studies based on the previous few years experience and its certified environmental product declarations (EPDs) for Forsmark and Ringhals nuclear power stations, and a similar exercise was undertaken in Finland by Kivisto et al. The sets of data compare as follows:

g/kWh CO2 Japan Sweden Finland
Coal 975 980 894
Gas thermal 608 1170 (peak, reserve) -
Gas combined cycle 519 450 472
Solar photovoltaic 53 50 95
Wind 29 5.5 14
Nuclear 22 6 10
Hydro 11 3 -

The Japanese gas figures include shipping LNG from overseas, and the nuclear figure is for boiling water reactors, with enrichment 70% in USA, 30% France & Japan, and one-third of the fuel to be MOX. The Finnish nuclear figure is for centrifuge enrichment.

Carbon taxes and emissions trading schemes for carbon

Despite much rhetoric and considerable experience with the European emissions trading system (ETS) for carbon applying to certain sectors, no country imposes an economy-wide tax on greenhouse gases or has in place an economy-wide ETS. The EU's cap-and-trade ETS, in its first six years of operation, raised a little more than $2.5 billion.

Much of the justification for subsidising renewables is the avoidance of carbon dioxide emissions, due to the need for European countries to meet Kyoto targets. The 2004 Eurelectric report thus identifies cost of carbon emissions avoided. These in 2001 ranged from €7/t of avoided CO2 in Finland to €64/t in Denmark, €74/t in Germany and €100/t in Italy. Projections for 2010 had much higher costs: €55/t for Denmark, €109/t for Germany and Italy, €148/t for France, and €155/t for the Netherlands. The weighted average is €88/t and that for countries with feed-in tariffs €103/t.

In 2011 an Australian Productivity Commission report surveyed much of the world scene. The report calculates the subsidy equivalent, abatement achieved and implicit abatement subsidy for policies and aggregated by sector in each country. Those for electricity generation are addressed here, and the following is largely from that source.

Estimates of abatement relative to counterfactual emissions in the electricity generation sector showed Germany significantly ahead, followed by the UK, then Australia, the USA and China. The estimated cost per unit of abatement achieved varied widely, both across programs within each country and in aggregate across countries. Emissions trading schemes (ETS) were found to be relatively cost-effective when not crowded out by other policies, while policies encouraging small-scale renewable generation and biofuels produced little abatement for substantially higher cost. What all schemes have in common is that they involve a cost, which someone must pay. These costs can be expressed in subsidy equivalent or resource cost terms, and can be considered as the ‘price’ of abatement achieved by particular policies.

International comparisons for electricity generation, 2010

  Abatement (%)
of emissions
Total electricity sector
emissions, t CO2
Implicit abatement
subsidy, $/t CO2
Electricity price
uplift, %
China 1-2 3370 35-37 1
USA 3 2270 43-50 -
Australia 3-5 196 44-99 1-2
UK 8-15 151 75-198 17
Germany 18-20 299 137-175 12-14
Japan 1 396 156-287 1
South Korea <1 191 225-401 -

The most widely applied emissions-reduction policies in the electricity sector are mandatory renewable energy targets (most with tradeable permits), feed-in tariffs, and capital subsidies (often in conjunction with feed-in tariffs). Mandatory renewable energy targets apply at the national level in Australia, Germany and the UK (under an EU mandate), Japan, and South Korea (committed for 2012). Although the USA does not have a national level mandatory renewable energy target, over 41 states have renewable targets of one form or another, most mandatory. Feed-in tariffs apply at a national level in Japan, the UK, South Korea and Germany, and at a state level in Australia. China and India operate national and state/province-based schemes. Feed-in tariffs also exist in some US states, where they operate mainly as commercial arrangements between utilities and small-scale generators that the utilities use to meet their renewable energy targets. Capital subsidies are common, and provided for widely varying purposes.

Energy-related accidents

A November 1998 study from the Paul Scherrer Institut in Switzerland, more recently available in English, examines other aspects of external costs. The 400-page report was commissioned by the Swiss Federal Office of Energy, and draws on data from 4290 energy-related accidents, 1943 of them classified as severe, and compares different energy sources. It considers over 15,000 fatalities related to oil, over 8000 related to coal and 5000 from hydro – in total, about seven World Trade Centers. It points out that full cost accounting, including both internal and external costs, is increasingly used for electric utility planning, though not on any standard basis, and not without considerable practical difficulty in assigning costs. Also it is notable that for any specific energy chain, different parts are often in different countries.

Considering only deaths and comparing them per terawatt-year, coal has 342, hydro 883, gas 85 and nuclear power only eight. (Nuclear power delivers some 2500 TWh per year, hence these eight deaths would be spread over 3.5 years in the course of providing 14% of the world's electricity, whereas coal's 342 deaths can be expected every 19 months for slightly more than twice the amount of electricity.) In terms of number of immediate deaths per event from 1969 to 1996, hydro stands out with about 550 compared with coal at about 40.

Deaths per TWyr

In the period from 1975, typically about 30 energy-related accidents with at least five fatalities occurred every year, including 1-5 with over 100 fatalities.

The new report updates and confirms an earlier study covering 1970-92.

A further OECD report in 2010 yields the following figures:

Summary of severe* accidents in energy chains for electricity 1969-2000

Fatalities Fatalities/TWy Fatalities Fatalities/TWy
Coal 2259 157 18,000 597
Natural gas 1043 85 1000 111
Hydro 14 3 30,000 10,285
Nuclear 0 0 31 48

Data from Paul Scherrer Institut, in OECD/NEA 2010 Comparing Nuclear Accident Risks with those from other energy sources.
* severe = more than 5 fatalities

The adoption of any policies or conventions to take account of external costs of generating electricity will have a very beneficial effect on the prospects for any strong resurgence in the role of nuclear energy.

Main sources

OECD International Energy Agency R&D Database
Externalities and Energy Policy: The Life Cycle Analysis Approach, Workshop Proceedings, Paris, France, 15-16 November 2001, OECD Nuclear Energy Agency (2002)
World Energy Outlook, OECD International Energy Agency (annual)
OECD Nuclear Energy Agency, Comparing Nuclear Accident Risks with Those from Other Energy Sources, NEA No. 6861 (2010)
Hirschberg S., Spiekerman G. and Dones R., Paul Scherrer Institut, Severe Accidents in the Energy Sector (November 1998)
Health and Environment in Sustainable Development: Five Years after the Earth Summit, World Health Organization (June 1997)
Krewitt et al, Environmental damage costs from fossil electricity generation in Germany and Europe, Energy Policy, 27: 173-183 (March 1999)
ExternE website
External Costs: Research results on socio-environmental damages due to electricity and transport, European Commission Directorate-General for Research (2003)
Luis Cifuentes et al, Hidden Health Benefits of Greenhouse Gas Mitigation, Science, 293: 1257-9 (17 Aug 2001)
Reiche D. & Bechberger M., Policy differences in the promotion of renewable energies in the EU member states, Energy Policy, 32, 7: 843-849 (May 2004)
Kivisto A., Energy payback period and CO2 emissions in different power generation methods in Finland (1995), & personal communication (2000)
Vattenfall, Life Cycle Assessment Vattenfall’s electricity generation in the Nordic countries (July 2012), Vattenfall's Electricity in Sweden (2005), also energy data
Vattenfall, Forsmark EPD
Tokimatsu K et al, Evaluation of lifecycle CO2 emissions from the Japanese electric power sector in the 21st century under various nuclear scenarios, Energy Policy, 34, 7: 833-852 (May 2006)
Bezdek, Roger H. & Robert M. Wendling, Real Numbers: The U.S. Energy Subsidy Scorecard, Issues in Science and Technology 22, no. 3 (Spring 2006)
Williams, J.H. and Kahrl, F, 2008, Electricity reform and sustainable development in China, Environmental Research Letters, 3, 4 (December 2008)
US National Research Council, Hidden Costs of Energy: Unpriced Consequences of Energy Production and Use (2010)
Australian Government Productivity Commission, Carbon Emission Policies in Key Economies, Research Report (May 2011)
Boisvert, Will, Green Energy Bust in Germany, Dissent Magazine (Summer 2013)







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