Sustainability and the Valuation of Externalities from Electricity Generation in California

The economic rationale for the valuation of and accounting for externalities is that their presence in the production and consumption of goods and services causes markets to deviate from the socially optimal levels. Externalities are costs (or benefits) to society that result from interactions among firms and individuals which are not reflected in market prices. Proper accounting for externalities in planning and decision making can bring market outcomes closer to their optimal levels. A critical element of sustainability is a growth path that results from accounting for externalities to the environment and to future generations that result from current economic activities.