Possibilities and Limits in The Monetarisation of External Costs of Energy Use

Abstract

The use of energy leads to so-called external costs and benefits which are not covered by the present energy prices. A major part of the energy-related external costs is caused by damage from environmental pollution stemming from energy conversion and energy use. In order to internalise these costs into the energy prices (e.g. by emission standards or energy taxes), it is necessary to identify, quantify, and also monetarise them.

This paper is an overview of attempts to monetarise energy-related environmental costs in the FRG, clearly showing the limited state of art in this field. Also, methodological problems of monetarisation are referred to showing different methods (damage cost approach, control cost approach, willingness-to-pay approach) which all have their specific drawbacks. One insufficiency associated with all approaches applied is the long-term impacts of environmental damage not being adequately reflected.