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External costs of electricity generation from renewable energies compared to electricity generation from fossil energy sources

Expert opinion commissioned by the Federal Ministry for the Environment, Nature Conservation and Nuclear Safety

External effects are the direct impacts of the economic activities of an economic agent (enterprises, private and public budgets) on the production or consumption options of other economic agents, without provision of adequate compensation. Depending on the type of impacts, it is possible to differentiate between positive external effects (external benefits) and negative external effects (external costs). This definition can be traced back to the welfare theory views of Pigou (1912).

Various energy and environmental policy instruments are geared towards an internalisation of external effects in the energy sector. Despite considerable research work over the past 15 years there are still uncertainties with regard to quantifying external costs. Moreover, new findings in recent years have in some cases led to a re-assessment of the external costs of electricity generation. The Federal Ministry for the Environment, Nature Conservation and Nuclear Safety commissioned the German Aerospace Centre (DLR, Stuttgart) and the Fraunhofer Institute for System and Innovation Research (ISI, Karlsruhe) with the task of elaborating an expert opinion, summarising the latest current status of knowledge on the external costs of electricity generation and elaborating recommendations for using the available data in the context of energy policy.