External costs


An external cost, also known as an externality arises when the social or economical activities of one group of persons have an impact on another group and when that impact is not fully accounted, or compensated, by the first group. Thus, a power station that generates emissions of SO2, causing damage to building materials or human health, imposes an external cost.

There are several ways of taking account of the cost to environment and health, i.e. for 'internalising' external costs. One possibility would be via eco-taxes, i.e. by taxing damaging fuels and technologies according to the external costs caused. For example, if the external cost of producing electricity from coal were to be factored into electricity bills, 2-7 eurocents per kWh would have to be added to the current price of electricity in the majority of EU Member States. Another solution would be to encourage or subsidise cleaner technologies thus avoiding socio-environmental costs. External costs are usually another strong argument for using more biomass and other renewables in regional, national and global energy supply.

Protecting the hospital during 2002 flood in Prague (photo by David Smrkovsky)		Shelter for victims during Ice Storm 98 in Canada (© Centre de sécurité civile, Ville de Montréal)