This research stream aimed at determining the real cost of electricity generation by identifying and quantifying externalities in the electricity sector in the form of environmental and health impacts. While major externalities associated with the fossil fuel-based electricity were estimated for Canada, research in India focused on key methodological issues faced in the assessment of electricity externalities in the country.

Full-cost accounting of electricity: an overview
One of the first steps towards 'greening' energy policy is the explicit identification, estimation, and valuation of the environmental and social impacts of activities in the energy sector (Figure 1 depicts the various stages associated with full cost accounting of electicity). The integration of such 'external' costs as inputs into policy-making constitutes an important step towards sustainable energy development. The electricity sector in particular offers an array of opportunities and choices in terms of fuel, technology, and location, all of which influence the nature and magnitude of externalities. The sector has also been very active in policy and regulatory reforms. The full-cost accounting component of the project therefore, focuses on externalities in the electricity sector.

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Full-cost accounting for the electricity sector in Canada
Using the Canadian thermal power sector as a case study, this paper analyses the full costs of environmental externalities associated with electricity production based on a modified life cycle analysis (LCA) known as the 'impact-pathway approach'. The analysis indicates that the air quality and global warming externalities associated with coal-fired electricity production are approximately equal, whereas for oil and gas-fired power, air quality externalities are one and two orders of magnitude less, respectively, than global warming damages. Both the relative and absolute magnitudes of the externalities costed in this study compare well with other studies. However, given that many impact pathways remain uncosted, the externality estimates in this paper are likely to be conservative.

Over 94% of the externalities attributable to the thermal power sector are from the human health impacts of aerosol sulphate (SO₄) exposure, a by-product of fossil fuel combustion. The major human health impacts are elevated risks of premature mortality and chronic bronchitis. The incremental SO₄ concentration (mg/m³) attributable to the thermal power sector on an average annual basis, corresponding to the census divisions in eastern Canada where the externalities associated with SO₄ exposure were evaluated and are illustrated in Figure 2.

Figure 2 Map of Canada showing SO₄ concentrations attributable to the power sector

Power sector FCA studies such as this underline the economic and societal co-benefits that can accrue in shifting power production to cleaner generation technologies. In the context of the Kyoto Protocol, these studies help clarify the magnitude of domestic benefits foregone if international emissions trading is favoured over domestic emissions reductions.

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Full-cost accounting for the electricity sector in India
With an emphasis on thermal power (specifically coal-based power generation), this paper reviews major studies in power sector externalities to assess their applicability and relevance in the Indian context.

Based on the local conditions including fuel characteristics and location of mining and power plants, the paper attempts to draw up a framework to capture externalities that are likely to dominate in India. On the basis of this framework and a detailed assessment of past studies and available data, the paper identifies information and modelling requirements along with research gaps in the assessment of 'full costs' of electricity generated from fossil fuels in India.

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Review of the methodology for valuation of climate change
In valuing the external costs of electricity generation, climate change damages have to be treated
differently from local costs. Any measure of climate change damages must capture the long time frame, global scale, and complex processes involved. While attempts have been made to develop aggregate climate damage functions, these obscure the unequal distribution of climate change impacts across regions, sectors, and individuals. This paper argues why a single measure of climate change damages for a developed country cannot be applied to a developing country due to the inherent differences in vulnerability and adaptive capacity.

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