Internalising externalities of energy systems in a comprehensive modelling approach: a way to re-orientate the choices of energy-economics markets

Sustainability of energy systems requires drastic changes of production and consumption standards, in order to fulfil energy and material demand with a lower quantity of resources and to reduce the whole impacts including also the environmental damages caused by the human activities. The internalisation of external costs in the pricing system can actually drive consumers' behaviour towards sustainable choices and life standards. In the last 20 years a great interest of the scientific community has been devoted to identify and monetarise the damages on human health and on environment caused by energy-related activities and to give guidance for supporting the design of internalisation measures. First studies on these issues were carried out at the beginning of the nineties, in the framework of the EUfunded ExternE project and dealt with an assessment of the externalities from a wide range of different fuel cycles (nuclear, fossil fuels, renewable sources). The ExternE methodology has been further improved, validated and extended in the framework of the NewExt, ExternE-Pol and in the NEEDS projects. At the same time, energy system analysis, developed since the late seventies in response to the oil crisis, has been further extended to include environmental issues and more specific economic evaluations. A major role in this framework, has been played by the MARKAL/TIMES family of models developed by IEAETSAP, largely utilised worldwide to support decision makers in understanding and planning the future behaviour of energy systems, over a medium-long term period. Starting from a detailed technology- economic-environmental characterisation of the analysed energy system, from demand to supply side, the MARKAL/TIMES based models identify the optimal configuration on the time horizon considered, in compliance with exogenous constraints (resources availability, pollutants reduction, etc.). Based on this background research, the integration of energy system analysis methods with externalities assessments represents a powerful tool to support a systemic multi-objective investigation, aimed at achieving a better resource management as well as at reducing environmental pollution. This chapter is addressed to describe, from a methodological and an operating point of view, how strategic energy planning can benefit from external costs evaluation. Thus an applicative example is provided, presenting the main results obtained for the integrated Italy energy model are presented and the same general conclusions for policy guidelines are derived.