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You are here: Home / Data and maps / Indicators / EN35 External costs of electricity production

EN35 External costs of electricity production

Topics: ,

Assessment made on  01 Nov 2008

Generic metadata


Energy Energy (Primary theme)

DPSIR: Driving force


Indicator codes
  • ENER 035
Geographical coverage:

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Key messages

  • The external costs that arise from the environmental impact of electricity production are significant in most EU countries and reflect the dominance of fossil fuels in the generation mix. In 2005 the average external costs of electricity production in the EU were between 1.8-5.9 Eurocent/kWh. Despite progress, these external costs are still not adequately reflected in energy prices. Consumers, producers and decision makers do not therefore get the accurate price signals that are necessary to reach decisions about how best to use resources.


Key assessment

The external costs used to calculate this indicator are based upon the sum of three components: climate change damage costs associated with emissions of CO2; damage costs (such as impacts on health, crops etc) associated with other air pollutants (NOx, SO2, NMVOCs, PM10, NH3), and other non-environmental social costs for non-fossil electricity-generating technologies. Based on the methodology used in this fact sheet (see e.g. note to figure 1 and metadata section), the external costs of electricity production have fallen considerably between 1990 and 2005 in almost all Member States, despite rising electricity production. However, the average external costs still represented between 1.8-5.9 Eurocent/kWh in the EU in 2005. These costs are significant and reflect the continued dominance of fossil fuels in the generation mix.



The external costs of CO2emissions must thus be interpreted with care. Watkiss et al (2005) stress that there is no single value and that the range of uncertainty around any value depends on ethical as well as economic assumptions. The damage factors for CO2 used in this factsheet range from 19 EUR/t CO2 (low estimate, based on ExternE-Pol) and 80 EUR/t CO2 (high estimate, based on Watkiss et al., 2005). These two values are common to all countries.


  • the use of pollution abatement technology, and;
  • the location of the plant itself with respect to population centres, agricultural land, etc.


Traditional fossil systems (coal, oil and to a lesser extent natural gas) exhibit the highest external costs for electricity generating technologies, in the range of 1.1 Eurocent/kWh (for advanced gas technologies using the lower bound estimate of damage costs Eurocent/kWh) to 25.9 Eurocent/kWh (for traditional coal-lignite plants using the higher bound estimate of damage costs). These fuels accounted for about 54 % of all electricity production in 2005 (see EN27 for more details). The majority of these external costs occur during the production of the electricity itself (i.e. from the burning of coal and release of specific pollutants to air, etc), although there is a small component associated with other parts of the fuel cycle (e.g. due to the mining and transport of the fuel). Co-generation reduces external costs2 and gas technology cogeneration gives external costs that are only two-thirds of lower than diesel technology. The introduction of advanced technologies (such as combined cycle (CC) and pressurised fluidised bed combustion (PFBC) can also reduce substantially the external costs of fossil energy systems. Renewable energy shows the lowest damages per unit of electricity.

Nuclear external costs are in the range 0.5-0.7 Eurocent/kWh. However, these external costs factors have to be treated with caution. There are small amount of emissions of CO2 and air pollutants associated with nuclear power but there are difficulties in assessing the risk and damage from nuclear accidents (in operation and waste disposal) associated with radioactive release (see footnote to Figure 2 for further information).

The fall in external costs observed over the period 1990 to 2005 was primarily due to a combination of (see EN09 for further information):


In some EU countries, the decline in the external costs per unit of electricity produced was mainly the result of the closure of old and inefficient coal-fired plants and their replacement with either newer, more efficient coal-fired plants or new gas-fired plants and the implementation of emission abatement measures. In Eastern Europe this was triggered primarily by economic restructuring and a decline in heavy industry (in Germany this occurred in the early part of the 1990s due to reunification). By contrast, in the UK it was due primarily to economic factors whereby gas became the fuel of choice for new plant. This also led to higher overall generating efficiencies from the use of combined cycle gas turbines (CCGT).

Many of the new Member States still have some of the highest external costs on a per kWh basis. The externalities also vary between the EU-15 Member States, as a result both of the fuel mix and location. Higher damages typically occur from emissions in countries in Western Europe because of the large population affected. Countries with lower mean externalities are Austria, Finland and Sweden, reflecting their low population density (in the two latter) and greater use of nuclear and renewable energy and, in particular, hydropower. Luxembourg is also particularly low due to a high share of imported electricity, with the remainder provided largely by natural gas and renewables.

At present, energy prices and taxation often do not reflect the full extent of external costs. However, progress is being made; with the absolute level of some taxation increasing (see EN31 and EN32) and the introduction of the EU emissions trading scheme (Directive 2003/87/EC) putting a price on carbon dioxide emissions (for electricity production and large parts of industrial emissions in the EU). Full cost pricing (incorporating all environmental costs) is a long-term goal, but there are difficulties, notably the lack of consensus about the acceptability and validity of damage cost values, and the complex interaction with the existing policy landscape. In particular, the interaction with energy subsidies, which distorts the absolute and relative prices of different fuels (see EN34 for more details). It should also be highlighted that taxes or other economic instruments are not the only way to internalise external costs; regulation is a way of internalising these costs as it may have a feedback on production costs.

Download detailed information and factsheets

  • EN35 (PDF document 164.02 KB)


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