Accounting for the Environmental Externality

Abstract

Renewable Energy programs are often sought to be justified on the basis of the private benefits and costs accruing to the individual households, in terms of providing improved lighting, superior cooking fuel, improved indoor air quality and the like. Benchmarking electric power or other services against their respective closest substitutes, namely power from coal fired plants or services provided by burning fossil fuels is incomplete if the differences in environmental impact are not taken into account. This chapter discusses the positive environmental externality accruing from domestic RE programs, to demonstrate that economic surpluses from domestic programs are realized beyond narrowly defined project boundaries. Employing biogas programs to illustrate, it is shown that the economic value addition from the consumptive use of the biogas for cooking, and the non-consumptive and indirect value derived from the biogas plant, viz., providing feedstock for other processes and other such benefits as greenhouse gas mitigation (positive externalities) need to be accounted for. The process approach adopted herein enables an integrated view of the value chain and consequently, a mechanism to reallocate costs and to distribute such surpluses.

..sustainability means running the global environment - Earth Inc. - like a corporation: with depreciation, amortization and maintenance accounts.

Maurice Strong

First Executive Director of the UNEP