An approach Integrating Life Cycle Analysis, ExternE and Economic Models

Ben Maddox

University of Newcastle

Australia

Integrated assessment for

Sustainable Regional Energy Systems

Research Aim

•Develop framework for Integrated Assessment

•Include models for: – Life Cycle Analysis– Externalities (ExternE)– Economics.

•Encompasses: – technological– environmental– economic– social impacts.

•Facilitate the inclusion of regional drivers for sustainability

Integrated Assessment?

• Process of dealing with complex issues, using knowledge from various scientific disciplines and/or stakeholders.

• Achieves equal consideration for each element of sustainability;

– Environmental– Social– Economic

• Provides a decision support framework for determining trade-offs for sustainable development.

Governance

Economic

Environment Social

EthicsSocial productivityMarkets

Trade-offs

Social viability

Eco-efficiency

=Transitionto SD

Variations over time/project cycle

Governance

Economic

Environment Social

EthicsSocial productivityMarkets

Trade-offs

Social viability

Eco-efficiency

=Transitionto SD

Variations over time/project cycle

Trade-offs

Batterham 2002

Challenges for integrated Assessment

– Ensuring that assessment is adapted to particular needs (e. Regional National or Project level)

– Accessing baseline information on environmental, social, and economic issues and integrating multiple data sets in forecast modelling, valuation techniques and BCA.

– Ensuring that the principle of stakeholder involvement and consultation is applied more widely and effectively;

– Avoiding a black box approach ensuring model uncertainty and assumptions understood by stakeholders

Elements of IA

• Input-output models • General equilibrium models (GE)• Partial equilibrium models• Environmental Impact Assessment (EIA)• Risk assessment• Scenario building e.g BAU• Life-cycle analysis (LCA)• Benefit-cost analysis (BCA)• Multi-criteria analysis – takes stakeholder preferences into account

Abazza 2003

Externalities ValuationAn externality exists if:– Negative/positive impacts are generated by an economic activity and

imposed on others not directly involved in a transaction.– The impact is not already priced in the market place, e.g. if the effect

is negative there is no existing compensation

Why value externalities?– Economists claim that getting the prices right is a prerequisite for

market mechanisms to work effectively for the goals of sustainable development (NEA 2001).

– Aapproaches for determining a monetary valuation for external costs and benefits of energy supply, in principle, provide a means to quantify and integrate these costs and benefits into the decision making of corporations, governments and consumers.

Internalised & Externalised cost of Energy

• Internalised costs of energy– Cost of coal/fuel– Capital costs– Labour costs

• Externalised costs of energy– Community health (respiratory illness via PM, SOx, NOx, etc.)– Ecosystem health (e.g. acid deposition)– Infrastructure degradation (roads)– Global warming (greenhouse gas emissions)– Smog (SOx and NOx transformations)

• But also: Externalised benefits of energy– Energy security– Fuel replacement (eliminating burning of coal directly in the

home e.g South Africa)

LCA & Externality Valuation• LCA is a traditional systems analysis approach used by

manufacturers, engineers and other stakeholders to quantify where environmental burdens are generated, and where opportunities for improvement exist.

• LCA is also an attractive tool for decision and policy makers for evaluating the environmental credentials of development options/policy. However, policy makers have generally found it difficult to deal with the numerous and diverse outputs of an LCA, which generally report all quantities of pollutants and resource consumption and use various methods for assessing and comparing the relevance of these values.

• Externality valuation has been used as a complimentary tool to LCA by transforming impacts into an an economic indicator.

Externality StudiesA review of externalities studies was undertaken. A wide variety of approaches was found, however the ExternE approach was adopted

for this research effort

Why ExternE?– The Impact Pathway Approach used in ExternE is the most

consistent with Life Cycle Analysis as it traces impacts from the bottom up from cradle to impact, and it is also consistent with the economic theory for an externality, I.e measures damage cost in contrast to control costs.

– The Externalities of Energy (ExternE) project began as a joint EC, US project in 1994 it is under continual development by the EC (Due for an Update this year) and has been implemented across the EU, China and Brazil http://externe.jrc.es/.

ExternE

• Involves methods for internalising external costs and benefits• Provides a monetary valuation of impacts and damages of alternative

technologies• Approach for comparing production systems• Increasingly used to provide information for decision making of

corporations, governments and consumers (IER 2003). Uses a consistent “bottom-up” methodology to evaluate the external costs associated with a range of different energy cycles

• Multidisciplinary approach:Economists, environmental scientists, health specialists, energy technologists, ecologists, atmospheric chemists, modellers and computer software specialists

Bottom Up – LCA approach

Bickel IER 2003

Results of ExternE Implementation

0 1 2 3 4 5 6 7 8 9 10

Coal

Lignite

Oil

Gas

PV

Wind

Biomass

Nuclear

Fu

el c

yc

le

EU c/kWh

Global warming costs (ExternE 1999)

Health costs (ExternE 1999)

Operating costs (1990$)

PV operating costs are approximately

64 EU c/ kWh

IEA 1999

Germany

Uncertainties• Data uncertainty ( e.g. slope of a dose - response function, cost of a day

of restricted activity, and deposition velocity of a pollutant• Model uncertainty (e.g. assumptions about causal links between

pollutants and a health impact, assumptions about the form of a dose response function (e.g with or without threshold) and choice of models for atmospheric dispersion chemistry.

• Uncertainty about policy and ethical choices ( e.g discount rate for intergenerational costs, and value of a statistical life).

• Uncertainty about the future ( e.g. potential for reducing crop losses by the development of more resistant species

• Idiosyncrasies of the analyst ( e.g. interpretation of ambiguous or incomplete information)

• Site and regional specificity for local pollutants• Upstream and downstream processes• Discounting - Global warming• Disaster aversion (currently not included)

Ideology

• Integrated Assessment can take separate; technology, economic, environmental and social models to provide indicators for decisions on sustainable development options.

• In principle an economic indicator can be achieved which describes the positive and negative aspects of a development scenario provided assumptions and uncertainties are transparent.

• Issues of regional significance can be determined and integrated into the assessment via participatory processes involving relevant stakeholders applying appropriate weightings for Sustainable Development drivers.

• A framework for assessing the sustainability of large scale development options in a regional context can be build upon these principles

Methodology• Integrate the use of Life Cycle Analysis (LCA), externality costing and economic input

– output modelling, to facilitate the assessment of the sustainability of regional development options.

• The framework is based on normalising, in monetary terms, economic, social and

ecological costs and benefits, so that all of the impacts associated various options can be considered on a similar basis and the relative magnitude of tradeoffs analysed.

• This information can then provide a knowledge base for participatory processes where a diverse cross section of stakeholders informed by the modeling results can assess and or formulate development scenarios.

• Where data does not exist for an impact or there is no acceptable valuation method, the impact will be included in a qualitative sense while indicators are developed

• Goal is to identify scenarios which perform well over a range of futures, e.g high or low global warming costs or high water externality value.

Research Framework

L C I

Traditional Economic Analysis (TEA)

Normalisation

Putting TEA LCA

& ExternE

Into common units

Assessment

Trade-offs e.g. magnitude of net +ve and -ve effect on

Key Indicator Categories

(Social, economic, ecological)

ExternE

Legend

Area of Existing Knowledge

Research Area

LCA

Regional outlook

Region with increased social ecological and economic

adaptive capacity/ sustainability e.g. a more diverse and adaptive regional energy

system

Weighting e.g. low

greenhouse gas emissions,

employment opportunities

Outcomes 1. Relative indicator of which

development option is the more valuable to society (current)

2. Sustainability, assessment of the adaptive options created by a development (future) e.g. Social & economically viable energy diversification

Strategy

Regional Drivers

Characterisation

Environmental, Industrial,

Economic, & Social Data

GIS Database for Storage,

Retrieval and Analysis

Case StudyHunter Valley Coal and Energy Generation System

Hunter Valley as a study region• The Hunter Valley energy chain was chosen as a suitable Case

Study because it is a large supplier of both domestic electricity and energy fuel (coal) for international export.

• The location of large electricity generation infrastructure has also created an economy that contains a number of energy intensive industries, for example aluminium production. The net outcome of these operations has made the Hunter Valley a large source of greenhouse gas emissions

• It is also a region that needs to develop a range of scenarios for a transition to sustainable development which maintains economic social and environmental viability through appropriate allocation of resource competing uses. E.g water for mining viticulture power generation

GIS Database of the Hunter Valley

Application of the ExternE Methodology

• Analysis of Air Pollution Effects

– Specification of the power generation technologies and the environmental burdens they impose (e.g. kg/s of particulates emitted by a power plant)

– Calculation of increased pollutant concentration in all effected regions eg ug/m3 of particulates, using models of atmospheric dispersion and chemistry

– Calculation of the resulting dose and physical impacts (e,g number of cases of asthma due to these particulates, using a dose- response function);

– Economic valuation of these impacts ( e.g multiplication by the cost of an asthma attack).

Monetary Value of Receptors

Crops Euro

Barley Yield loss in decitonnes 6.3

Oats 6.6

Potato 9.6

Material Maintenance costs per m2

Galvanised Steel 17-55

Limestone 299

Mortar 33

Natural Stone 299

Value of a prevented fatality $2,500,000Year of Life Lost (acute effects 3% discount rate $125,530Year of Life Lost (Chronic effects 3% discount rate $73,106Chronic Bronchitis $128,280Cerebrovascular hospital admissions $12,674Respiratory hospital admission $3,273Congestive heart Failure $2,470Chronic Cough in children $182Restructed activity day $83Asthma attack $57Cough $34Minor restricted activity day $34Sympton day $34Bronchodilar usage $30Lower respiratory symptom $6

Value of a Statistical Australian Life of 2.5 $M (DoHA (2002).

Dose Response FunctionsReceptor Impact Category Reference

Pollutant

fer

Asthmatics Cases/(yr-person ug/m3)

Adults Bronchodilator usage PM10

Nitrates

Sulfates

0.163

0.163

0.272

Children Bronchodilator usage PM10

Nitrates

Sulfates

0.078

0.078

0.129

Children Chronic cough PM10

Nitrates

Sulfates

2.07E-3

2.07E-3

3.46E-3

Entire Population

Respiratory hospital admissions

PM10

Nitrates

Sulfates

2.07E-6

2.07E-6

3.46E-6

Chronic Mortality PM10

Nitrates

Sulfates

1.57E-4

1.57E-4

2.60E-4

Ref Pope & Dockery (1995), Dockery et al (1989)

Quantification of impacts and costs

• Exposure Response Function:

• Humber of Respiratory Hospital Admissions (RHA)

• = 3.46E-6. Sulphate ug/m3 . Population* $3,273(per case)

• Annual averages as determined with TAPM

Population Density & 400 X 400km TAPM Grid

Bayswater & Liddell Power stations

Air pollution modeling and receiving population

Average PM10 ug/m3 (2002)

Results from Implementation of ExternE

MWh 2002Bayswater 15250000Liddell 9290000Total 24540000

Health Cost estimated at $2 per MWh using PM, GGE cost of $43.5 PPP Adjusted from a value of 29 Euro/ t – CO2. For Bayswater and Liddell this equates to approximately ~ $40/MWh so externalised cost estimated at $ 42 per MWh

Population Receptor Condition Estimated Cost

Asthma (11.3%) Bronchodilator $1,618,714

Cough $1,890,816

Lower respiratory symptoms $121,155

Children 20% Chronic Cough $220,506

Adults 80% RAD $4,882,379

Chronic Bronchitis $7,365,441

Entire population Chronic Mortality $33,622,943

respiratory hospital admissions $128,464

Acute $1,985,752

Total $51,836,170

CCSD 2003

Economic Impact of the HV energy Chain

• The economic impact of electricity generation is obvious, however there will be different benefits associated with different technologies. Coal has externalised costs as well as externalised security benefits, it also supports industries important to the Hunter economy which require a base load supply such aluminum refining.

• 89.5% of coal exported by NSW comes from Hunter Valleys mines generating approximately $4.2 billion dollars in turnover in 2002 (HVRF). A Price Waterhouse Coopers study showed government revenue at approximately $10/t. 11.8 of coal Mt were used by Bayswater and Liddell in 2001-2.(Coal Industry Profile 2003)

• The turnover of the Hunter Aluminum Industry in 2002 was $M1132 (HVRF)

• Macquarie Generation turned over $M757 in 2002 (MacGen 2003)

Future Work• Build on the GIS database of information available, Validate pollution modeling against

monitoring data, (including peer review). Widen the number of externalities considered (e.g Water externalities ) and make uncertainties and assumptions more explicit.

• Continue Work with the Hunter Valley Research Foundation to determine the economic multiplier effects of the coal/electricity generation industry

• Review methodologies for Multi Criteria Decision Analysis and participatory processes. Develop a methodology appropriate to Australia’s environment and society for integrating the indicators generated by the externality and economic modeling with participatory process. Use these processes to guide scenario development.

• Develop criteria for testing the ability of an existing and alternative development option to perform in a robust manner under a range of future scenarios. E.g Carryout sensitivity analysis of options at different damage costs for global warming

• Mapping existing resource and demographic conditions within the geographical region, so that key alternative regional spatial organisations of industries and community can be explored

• Apply IA framework to a number of energy scenarios for the Hunter Valley

Conclusions

• Building up regional technological, environmental, economic and social databases are essential for region based IAs.

• Currently at the stage of being able to extend LCA to an estimated economic indicator, providing SD information in regard to technology choices which require the positives and negatives to be traded off.

• The analysis needs to be extended to allow stakeholder participation in the formulation development scenarios which reflect desired regional futures.