Environmental and Health Costs in the European Union: Policy-Making⋆

Quantification of the environmental and health costs of an energy service is a key element in shaping sustainable development policies. The European ExternE and related studies provide a scientifically agreed methodology to assess ‘external costs,’ that is, socioenvironmental damage, mainly health costs originating from the power generation and transport sectors. At the cross-border of Keynesian, welfare and environmental economics, the quantification of external costs has been a key research topic since the early 1990s at European Union (EU) level. This article focuses on the market failures for public goods. Using the ‘impact pathway analysis,’ European ExternE and related projects started by evaluating the damage caused by air pollution to human health (morbidity and mortality). This damage is translated into monetary terms – through the willingness to pay to avoid a negative impact – for the whole EU, different fuel cycles (fossil, nuclear, and renewables), and the different transport modes (road, rail, waterways, and air). In this way, a comparison of technologies is possible on the basis of their total costs, that is, the sum of the private, social, and environmental costs. After several years of research, the phrase ‘internalization of external costs’ entered the European policy jargon. Thanks to ExternE, the polluter pays principle is nowadays a reality not only in the environment field (air quality) but also in the energy, technology, and transport policies. In addition, since the beginning of this century, the ‘impact assessment’ – obligatory for any major EU initiative – and the European State aid policy (cf. guidelines for environmental protection) take the external costs into consideration.