External Costs of Energy Security and Climate Change

Abstract

This paper presents the external costs of electricity due to climate change and security of energy supply derived during EU Framework 6 project “Cases”. The cost of green house gases emissions is an important component of the total external cost of electricity production. In the framework of the CASES project, two approaches were followed to assess global warming. With the first methodology, the quantifiable marginal damage costs of climate change were estimated, while with the second one the marginal avoidance costs of GHG emissions was based on Meta analysis. The paper will focus on the power sector therefore for external cost of energy security the Value of Lost Load (VOLL) will be applied. The aggregate value of security of electricity supply can be expressed by multiplying the probability of the intensity, frequency and duration of supply disruptions, i.e. expectation value of the amount of electricity not served by VOLL. The paper discusses external energy cost evaluation methodologies, results of external costs of climate change and energy security assessments provided in CASES project and develop recommendations for the integration of these external costs in decision making in energy sector.