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Externalities and Coal-Fired Power Generation

AUTHOR: Lee B. Clarke
DATE: November 1996

This report-the latest in the series of Perspectives reports from IEA coal research examines the concept of externalities and environmental assessments as applied to coal-fired power generation. The rationale for considering externalities, activities likely to cause externalities, and methodologies for valuing environmental effects are reviewed. Implications for coal and coal- use are discussed. The use of externalities in decision making is related and complementary to the environmental impact assessment and other policy tools such as cost-benefit analysis, and risk assessment.

The utility of externality assessment is highly dependent on the quality of the data used to arrive at valuations and the assumptions made. To gain acceptance, externalities analysis must be performed in a way that is consistent, comprehensive, and transparent. A partial approach may unfairly disadvantage coal and fail to achieve the goal of optimal recourse allocation. Despite the difficulties outlined, the analysis of externalities and the valuation of external costs can provide can provide decision-makers with the useful tool for making policy determinations--providing the limitations are recognized.