Accounting for external environmental costs in a study of a Swedish district-heating system - an assessment of simplified approaches

Journal article, 2012

External cost (XC) accounting of air pollution has been applied in a number of energy system studies in order to find least-cost solutions from a social-cost perspective. In these studies, the economic evaluation covers the XCs apart from the private costs. The greater number of life cycle processes, pollutants and environmental impacts covered, the more accurate the results will be but, obviously, the XC accounting process will be more complex and time-consuming. There is also the risk of increasing uncertainty as complexity increases, and the question is to decide on the appropriate level of comprehensiveness. The purpose of this paper is to evaluate certain simplified XC accounting approaches applied to a study of the district-heating (DH) system of Gothenburg, Sweden. The methodology applied is to vary the inclusion of pollutants and life cycle processes in the XC accounting under different scenarios. The results show that if environmental costs are estimated to be substantial and the net power generated in the DH system is assumed to replace generation in coal-fuelled power plants, limiting the coverage of life cycle processes and pollutants outside the DH system would not be appropriate. Instead, if assuming that power generation based on natural gas were replaced, the application of all simplified approaches studied leads to DH solutions that are congruent with those obtained employing a more comprehensive approach and is, thus, considered to be sufficient. However, results also show that certain simplified approaches are justified regardless of the assumed power generation replacement and given a wide range of environmental cost estimates used in the study, such as limiting the number of covered pollutants to the most relevant ones (CO2, SO2 and NOx). Thus, a less comprehensive XC accounting process may be considered appropriate for finding least social-cost solutions in the Gothenburg DH system, as well as potentially in many other DH systems featuring similar technical and environmental performance.