Economic models to evaluate energy costs: Are externalities and energy accounting the answer?
Aim: In the context of climate change this paper explores the value of models for evaluating energy costs by considering energy accounting and externalities instead of capitalistic economics.
Research methods: We test the hypothesis that the conventional economic model of the energy market can lead to inappropriate choices, and that those choices may be environmentally damaging. We examine energy accounting (energy return on energy investment), embodied energy and the incorporation of external costs as more valuable economic models.
Findings: This paper reviews existing economic tools and examines modifications, which, when applied to energy provision or efficiency and conservation of energy applications, may give more accurate information about investment, return and environmental damage. Energy accounting of schemes should be a preliminary requirement for all proposed energy schemes. Externalities are less readily applied, but as the costs associated with renewable energy are becoming competitive in conventional economic terms, they are less valuable than energy accounting.
Value of the paper: The paper concludes that a preliminary assessment of a proposed energy scheme should be undertaken using energy accounting and external costs to determine the true energy value. These models could be used to select the best environmental option. Indeed “energy uneconomic” schemes, which cost more energy than they deliver, should be abandoned in order to avoid unnecessary environmental damage. After this process, legislation and fiscal measures such as taxes and incentives could be applied to satisfy social and political imperatives. Examples of energy accounting in insulation and consideration of external costs in a proposed strategy to replace fossil-fuelled electrical generation in Indonesia are included in the paper.
Limitations: We have not considered the serious question of finite fossil fuel resources and feel that this would be a profitable line of research.
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