External Costs of Fossil Fuel Cycles

The use of energy causes damage to a wide range of receptors, including human health, natural ecosystems, and the built environment. Such damages are referred to as external costs, as they are not reflected in the market price of energy. Traditional economic assessment has ignored externalities, and policy makers have tended to opt for “command and control” legislation for environmental issues. However, there is a growing interest in adopting a more sophisticated approach involving the quantification of the environmental and health impacts of energy use and their related external costs. This requires policy analysts to take account of environmental aspects in their decision making and to undertake a specified cost-benefit analysis.